Posted on 09/02/2010 1:14:26 PM PDT by SeekAndFind
Since our ugly economic maelstrom begun, the companies responsible for shedding the largest numbers of workers have the highest-paid CEOs at their helms. Clearly, there's something wrong with this picture.
This unpleasant finding headlined the Institute for Policy Studies' (IPS) report, CEO Pay and the Great Recession. Shareholders need to think about whether incentivizing management brutality is really the best path toward bettering corporations' long-term prospects.
When leaders aren't heroes
The IPS report shows that corporate America's "layoff leaders" are making out like bandits. CEOs who presided over the worst mass layoffs earned almost $12 million on average last year, 42% more than the CEO pay average of the S&P 500 firms as a whole. Furthermore, 72% announced their job reductions while reporting positive earnings.
Here are a few highlights (or lowlights) of the IPS report:
* Johnson & Johnson's (NYSE: JNJ) high-profile drug recalls and FDA scrutiny don't suggest a particularly well-run company. However, CEO William Weldon still made $25.6 million in 2009, more than three times the S&P 500 CEO average pay, even while he cut 9,000 jobs from the company's payroll.
* American Express (NYSE: AXP) received $3.39 billion in bailout funds under TARP and slashed 4,000 jobs, but CEO Kenneth Chenault still managed to make bank. He collected $16.8 million in compensation in 2009, including a whopping $5 million cash bonus.
* Hewlett-Packard's (NYSE: HPQ) Mark Hurd is history, but he's been richly rewarded despite his job cutting and public resignation. He has axed 31,000 jobs since September 2008. (The report notes that company founders William Hewlett and David Packard had a no-layoff policy.) Although so many Hewlett-Packard employees lost their jobs in recent years, Hurd's own departure is hardly a painful hardship: He'll get $28.2 million in cash and stock for his ousting.
* AT&T (NYSE: T), Verizon (NYSE: VZ), and Sprint Nextel (NYSE: S) have cut nearly 44,000 lost jobs in total, but despite the huge and growing competitive challenges they face, their CEOs still made the list of highly compensated job slashers.
It's time to question the conventional wisdom
Even in these economically tough times, there's no reason to throw a pity party for the American executive. CEO pay has continued its trajectory into the stratosphere. IPS pointed out that executive pay is double the 1990s average, quadruple that in the 1980s, and eight times that of executives in the mid-20th century. In 2009, major corporations paid their CEOs an average of 263 times the average compensation of regular U.S. workers.
Shareholders shouldn't celebrate brutal axe-wielding CEOs, but rather question whether things went terribly wrong on their watches. Did the CEO encourage too much hiring before business went sour or profitability was threatened? Did the CEO misjudge the economic or competitive climate? Do some CEOs conduct mass firings to trick shareholders into thinking they're "boosting profitability" in the short term, when they should actually be creating better plans for action and innovation?
If anything, job-slashing, highly compensated chief executives might actually be destroying their companies' long-term prospects. According to the American Management Association, 88% of businesses executing layoffs report declining employee morale. Anybody who's been through such a situation probably knows that ominous fear that the axe might next fall on you.
A University of Colorado survey seems to contradict the conventional wisdom that "downsizing boosts long-term growth." The survey, covering 1982 through 2000, actually yielded no evidence that downsizing boosts return on assets. Instead, "stable employers," with less than 5% annual turnover, tended to outperform most layoff-happy companies.
Well-known management consultant Peter Drucker once said that CEO/worker pay ratios in excess of 20 to 1 endanger morale and productivity. It sounds like simple psychology and common sense, but as Voltaire said, common sense is not so common.
Do good stewards really carry a machete?
The old, "when in doubt, lay off a bunch of workers and make shareholders and Wall Street analysts happy for now" routine may actually signal a substandard, unimaginative leader who can't innovate or navigate changing times. And if these individuals happily collect oversized paychecks for such painful and unimaginative profit-boosting measures, they might just be greedy, too.
The IPS report suggests this may be a bigger problem than realized. Shareholders should question whether such companies really do have their best interests at heart. After all, how well would these highly paid execs run their businesses without any employees to back them up? My guess: Not so well.
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CHAINSAW AL
The emphasis on the website that originally hosted this belongs on the second word.
This is A BUSINESS.
When you look down the road and you see no profit or future then it is IN YOUR SHAREHOLDERS INTERESTS to take the cut and payouts while you have them.
If it was going to be MORE BENEFICIAL to the shareholders to hire people and expand production then they would do that. But they are just not seeing it.
And the company's first and only responsibility is to their shareholders.
Motlley Fools wrote this? LOL! They were pimping Enron on their defunct radio show with Ken Lay and 10,000 employees on one Saturday.
Spewing the same pargigm shift BS and how Enron was going to do great selling Internet bandwidth etc. My guess is Enron paid them a LOt of PR money for that.
Government increases the cost of labor and there is less labor- blame the CEOs!
Ah, yes, this is exactly what happened at my husband’s company. The brain dead bozos in management had bought up a ton of company stock when it was at an all-time high price, only to see it plunge to half that over the next several months.
Their response? Why to lay off most of their older, more experienced workers, of course! The man most responsible for the layoffs announced them at a Christmas townhall meeting where he wore an elf hat and led employees in caroling immediately after saying there would be layoffs. He said they would be performance based.
For some mysterious reason, many older workers who had had sterling job reviews for years, suddenly were given “needs improvement” ratings. In some cases, the ratings given by immediate bosses were changed after a meeting with higher-ups. Another “funny” thing is how most of the layoffs were of older workers with just a smattering of younger workers thrown in to avoid age discrimination lawsuits.
Mr. Elf was given a huge promotion (even though he is a dunce) for his efforts, and I saw Cavuto interviewing the CEO of this company praising him for his cost-cutting efforts ahead of the curve. No mention of the stupid move earlier to buy up all that overpriced stock.
The rich will always win. They will always get richer, and the little guy will always get kicked around. The difference between me and the average populist is that I understand that is just the way things are. Government interference only helps the rich get richer and makes the middle class disappear. The only chance a little guy has of making any progress in the world is in an unfettered free market. Anyone who thinks that government and big business are enemies is not paying attention.
I personally have a problem with this discrepancy in pay.
However, I do not think it should be illegal or that we need legislation to “correct” it.
So, yes. I can agree that there is something wrong with this. But I also think that sooner or later the market will work out the best solution.
Good post.
Could be good or bad. If your business depends on U.S. consumers, probably bad.
Motley Fool=Motley Economic Fool. I agree that most Fortune 500 CEOs are mediocrities that not worth their compensation packages. The ones who can make the hard decisions like what to cut during recessionary times such as these are the ones that should be incentivized.There is a balance in that exceptional employees might be retained during hard times because long term they will be beneficial during good times.
Motley Fool has difficulty in distinguishing the efficiency of private corporations from the inefficiency of the Federal government. Apparently they want corporations to be run like the Federal government.I do have one such corporate model that comes to mind. Motley, can you say General Motors
RE: But I also think that sooner or later the market will work out the best solution.
I have always believed that this market solution should include ALLOWING companies that have poor CEO’s and dismal management teams on top to get what they deserve -— FAIL WITHOUT USING TAX PAYER MONEY TO RESCUE THEM.
RE: No mention of the stupid move earlier to buy up all that overpriced stock.
Two questions :
1) Was your husband part of the layoff? I hope not.
2) How’s the company doing since the mass Christmas layoff ?
Remember Kraft? Handing out big bonuses to executives for getting the rank-and-file to accept wage cuts? When companies lay off upper executives in the same manner as hourly workers (little or no separation compensation), then they might get sympathy from average working Americans. As it is now, they just protect their own.
Yes, he was. He was also one whose performance review was changed after the fact. It took about 6 months, but he did find another job. It’s not quite what the old job was, but we are grateful that he is employed. Many older workers are still unemployed.
The company’s stock is stuck in the doldrums. Soon after the layoffs, there was a rash of serious mistakes made, and management’s response was to send out a stern admonition to employees to stop making mistakes. There is a reason why Dilbert comics are so funny - they are so true!
Because they are BIG companies.
Big companies have lots of employees. Big companies have higher-paid CEOs. So the CEO who CAN layoff the most people is the guy who happens to be PAID the most to run the BIGGEST company.
How F-ing stupid are these people who write this drivel?
Heck, let's setup dorms so American employees can just stay on the job sixteen to twenty hours a day.
I know, I know, how bout we just do away with those pesky safety and environmental regs. That’ll cheapin labor up a bit.
Hell, for the benefit of the shareholders, how bout we all give up our vacation, 401k’s, pensions, pay more for our healthcare.
Remember folks, workers are businesses within themselves.
Multinational corporations are not evil, but like any mortal man, driven by the quest for the dollar.
Labor asks for fair compensation for services provided.
When CEO’s, lets say Mark Hurd, are compensated hundreds of times above the average worker....this borders on greed.
When CEO’s resign or are forced from their positions due to impropriety or poor performance, they should not be allowed to walk away with fortey million exit bonus.
Corporations in a capitalistic society are free to do business where ever they please, but when it endangers a nation economically / financially, there should be protections in place.
For instance, too big to fail. Financial corporations too big to fail once was called a monopoly.
Congress has opened their trouser pockets to allow corporate lobbyist to fill’em up.
Scratch my back, I'll scratch yours. Campaign cash for policy allowing millions of good paying manufacturing positions to be shipped overseas.
This used to be called bribery.
We do not live in a capitalist model any longer, it has morphed into a hyper-globalist model.
The hell with the American standard of living, the American worker.
Multinationals are grooming the massive populations of India and China to become a whole new consumer class...follow the $$$$.
Nonsense stat! The biggest companies would be expected to have the biggest layoffs and the biggest CEO pay packages. But they compare biggest layoff company pay to average company pay.
Sir Motley is a Fool.
As a demonstration that a lower CEO salary would NOT have offset the cost-cutting measures that the layoffs did:
1. In the J&J case, if the CEO salary had been “cut” to the S&P500 average, it would have been a $17million cut, and with that they could have kept the 9,000 laid off workers on the payroll, with salaries of $1,888 each.
2. Using the same type of math in the American express case, they could have used a CEO pay cut of $8million, and kept the 4,000 workers employed on $2,000 salaries.
The stupidity of the tone of the article is that certain CEOs made their big salaries BECAUSE they engineered big layoffs; and that with lower CEO pay they could have kept more people on staff. It’s foolish nonsense.
To the Motley Fool, market conditions, changes in technology, industry-wide changes, market-related economic issues, recessions nor loss of business could possibly create challenges for which CEO’s could be rewarded for facing, nor could they possibly alter the structure of a business that could result in “down sizing” some part of it.
No, only CEO greed can create high CEO salaries and down sizing. (barf)
On the other hand, I often see moves meant to enrich the CEO, not necessarily what’s good for the company. Sure a bunch of layoffs might spike the stock for a short while, but throwing out most of the talent is often the sign of a company dying of bad management — and we reward that bad management.
You have alluded clearly to what I have been observing in the U.S. for the last 20 years. People here bitch about government and union jobs unceasingly but with this atmosphere people are seeking some security. I’m not saying by any means they will find security there but there are far fewer choices for middle class people now.
When you can un-employ a thousand middle class Americans , move their jobs to a third world country,and make millions doing it - heck why not ...right? This is what share holders demand. Anyone can label this sentiment anyway they like but it is true. It does shrink wages, the middle class, the standard of living, etc. Unionisation will eventually accelerate this process.There are no easy answers if there are any answers at all. Maybe patriotism? No matter how rich the rich get they are all gonna die anyway. The great equaliser.
Sorry, but in my lil ol opinion, fair trade not give away the farm.
This has become a national security issue. We do not have the manufacturing capability to generate the GDP necessary to overcome this economic downturn.
The Chicoms are STILL our adversaries...just listen to the Chinese generals and admirals speak. One will quickly discern the Chinese have been using their newly found economic wealth to gain significant ground militarily.
It's ok, we didn't need to be the lone superpower anyway....hell, share and share alike, right?
What sensitive technology the Chicoms weren't sold by the Clintons, they stole.
This country is in desparate need of it's core manufacturing base. The middle class is indeed shrinking and our national well being IS on the line.
Enough is enough with these greedy politicians and pompus oligarch globalist.
Americas lifeboat is takin on water folks and we the people better stand up for her.
Hoppin off soap box now. Have a great LABOR DAY weekend folks
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