Money for nothing and your chicks for free:
Ugly truths about corporate compensation
By Jim Karger

Mark Knopfler of Dire Straits sung those words about the benefits of being a rock star but he could as easily been talking about being a corporate CEO, many of whom are rewarded for nothing these days, or even worse, rewarded for losing.

Chuck Prince is a good recent example. He came close to destroying the largest bank in the world—Citigroup—and was awarded US$24 million on his way out the door. Citi ultimately had to be bailed out by the Kuwait Investment Authority.

Stan O’Neal is another example worth mentioning. His exit package at Merrill Lynch last year was even more bizarre. In the six weeks between August 12, 2007 and September 30, 2007, as Merrill’s losses mounted, Stan managed to play 20 rounds of golf on four different courses before the company announced an US$8.4 billion write down. What was Stan’s punishment? Merrill awarded him a goodbye package worth $161 million.

It gets worse.

Perhaps the most grotesquely overcompensated executive in recent history was Bob Nardelli, former CEO of Home Depot who ran that company into the ground and was ultimately forced out with a severance package of US$210 million, which apparently wasn’t enough for him. He was recently selected by Cerberus Capital, the new owners of Chrysler, as their CEO. Nardelli is a Jack Welch clone, one of the Six Sigma gurus. Unfortunately for Chrysler, Six Sigma is process-oriented management, a way to squeeze every nickel out of the running a business including the wages and benefits of employees. The car business, on the other hand, is all about product and what people want and will buy. It is a business won by those in touch with the market. Nardelli knows squat about actually building anything, including cars. My guess is he’ll cut Chrysler to the bone. What he won’t do is save that business whose products are looking more outdated as each year passes. The only sure thing is that he’ll get another fat severance package  when it is time for him to leave.

Abuses observed, I am not anti-CEO. Indeed, most are hard-working, talented, and paid in large part based on their performance. I gladly count several as friends. And, I would have no problem with Chuck or Stan or Bob getting rock star money if they had actually delivered for their shareholders and employees.

But they didn’t. They turned out to be impersonators who looked good, spoke well, kissed enough butt in boardrooms to attain positions far beyond their abilities while collectively being unable to manage their way out of their own driveways.

The problem, in part, is inbreeding within corporate boardrooms. Today’s officers and directors get big salaries, stock options, pensions, etc. in part because most use the same executive compensation consultants and know that as long as they keep pushing the numbers up for their buddies they will eventually benefit themselves.

Greed isn’t surprising. It is natural. What is dumbfounding are corporate America’s apologists who argue straight-faced that this system some how works, and moreover that employees should have no right to complain and that shareholders should remain silent during the carnage.

Not a chance

If I worked for Citigroup, or was a shareholder of that company, I would be raising hell.

Citigroup posted a record loss last week and in the same breath gave new CEO Vikram Pandit US$26.7 million in stock before he was even there long enough to find his office without a map.

What does that have to do with Citigroup’s employees? A lot. Last week the company announced it was putting 4,200 employees on the street after taking a write-down of US$18.1 billion on sub-prime mortgages held in their portfolio. And, employees are not the only ones suffering. Citigroup’s shareholders got drilled, too. Citigroup shares closed at US$24.40 the day the most recent executive bonuses were awarded, less than half the US$54.77 closing price on the same bonus day last year.

While Citigroup sent employees home to tell their spouses and children they no longer have work, Sallie Krawcheck, head of Citigroup’s wealth-management division, pocketed US$8.43 million in stock, a 79-percent increase over last year. Vice Chairman Stephen Volk stuffed US$8.29 million of Citigroup stock in his pocket, an 81-percent increase. And, that’s just the beginning of a long list of execs that include Chief Financial Officer Gary Crittenden, who joined Citigroup just last year and netted a US$9.21 million stock bonus.

I’ve got an alternative to the current corporate compensation system—don’t pay those who haven’t performed. Instead, fire them. Tell them to put their “sh_t in a shoebox and get out.” If the company feels compelled to give them something, give them the shoebox. And, as for those who are just coming aboard, give them directions to their offices and decent salaries and the promise of big fat bonuses if, and ONLY if, they perform for their employees and shareholders. Pay for performance, plain and simple.

Anything else is “money for nothing.” Chicks, however, are never free, at least not for 50+ year-old execs, and that may be the only justice under the current system.

Jim Karger is a resident of San Miguel and is a frequent contributor to Atención.