Saturday, December 6, 2008

Note to Mr.CEO- "Do Unto Others As You Would Have Them Do Unto You"

The big economy news this past week was the total number of job losses in the economy- 1.9 million jobs lost year to date out of which 533,000 jobs were lost in November alone. (See graph below)

To make matters worse, there have been reports of accelerated layoffs at companies in preparation for a bleak 2009.

The most obvious objective for such aggressive job cuts is cost reduction and a quick return to
profitability. But why are companies not looking at senior management job cuts or paycuts as a show of solidarity? The Europeans seem to have beaten the US to it. (UBS, Deutsche Bank and Barclays PLC have either pulled bonuses for top executives, or executives there have voluntarily forfeited them.)

At invESGuard, we pulled up a list of companies that have announced layoffs and analyzed any CEO paycut or salary review at the same company. Here's what we found:

1. Out of the 24 companies on our list, CEO's of only 3 out 24 companies (12.5%) announced a paycut. This does not include Citigroup CEO who has yet to announce the full extent of his paycut, or the Detroit Three who have outlined a conditional $1 salary for 2009 (contingent on being granted a Government loan).

2. The CEO of Hartford financial was given a $3.25 million bonus as part of a non equity incentive plan compensation.

3.Legg Mason CEO compensation includes a $1.9 million bonus.

4. Boeing CEO's base salary actually increased by $50,000.

Morgan Stanley CEO is one of the 3 out of 24 CEO's who has received a lower compensation during 2007 given the dismal company performance. However, a close look at the salaries of senior management at Morgan Stanley, reveals a different picture :
Mr.Scully (Co-President) made over $15 million
Former Chief Financial Officer, Mr. Sidwell was granted $14.61 million (including a cash bonus of $12.7 million owing to he retirement).
The new Chief Financial Officer, Mr.Kellheler made $21 million including a bonus of $6.9 million. Mr.Nides (Chief Admin Officer) made $6.33 million.
The total bonus paid to the 5 senior executives for 2007 totaled a whopping $35 million.
So much for the CEO pay cut!

One question that repeatedly comes to mind is- Do they even understand the true meaning of a bonus payout and the way that this is supposed to work?

The complete disregard with which CEO's refuse to even consider a paycut while the middle and lower management not just face paycuts but in most cases lose jobs, is completely ridiculous.

Even the Big Three Auto Industry Chiefs who have been before the Congress begging bowl in hand, have announced only conditional paycuts. That is, in return for the loans from the government, will they will accept a $1 salary for 2009.

Rep.Kanjorski rightly pointed out during the hearing, 'Instead of $1 salary for 2009, you should not be getting a greater salary that any of the successful Japanese auto executives as long as you are indebted to the United States. Until that time you should not be getting more than 20 times the salary of successful Japanese executives.'
Honestly, without the government's help, at least 2 of these auto companies would be broke and then the possibility of even earning that $1 would not exist. How ironical that no sweeping management concessions have been announced by GM when according to one news report, GM is not even replacing the batteries in its wall clocks!

Depressing as this news maybe, there have been a few bright spots:

1.In July of this year, the CEO of Midwest Air Group Inc. says he’s taking a 40% pay cut as part of the company’s restructuring, a plan that includes demands for even deeper pay cuts from union pilots and flight attendants.
2. The new AIG CEO accept ed a 1$ salary in return for government help.
3.Ky based Ashland's CEO has accepted a paycut for 2008.

If you know of any other companies that have made positive changes to Senior management compensation, drop me a line at

1 comment:

  1. Here's an icing to that:

    The Wall Street Journal Reports:

    "Thain Spars With Board Over Bonus at Merrill

    Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.

    The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said."