These are M.A.D. economic times. That’s M.A.D. as in Mutually Assured Destruction, the old Cold War strategy where no one would be left standing after that first nuke was launched. Economic experts, who agree on little else, agree on this: if our current vicious cycle of “layoffs-driving-down-purchasing-which-increases-layoffs” continues, no one will be left standing.
There is an exit strategy here that no one is talking about; billions of dollars that could be used to address the layoff cycle immediately. This is not a plea for legislation or government funds. In fact, not a penny would come from taxpayers. It’s simple, voluntary, and dare I say, patriotic. The “Chief Executive Officer Patriot Pledge,” listed below, is a 95-word call to action for all corporate leaders, not just those in financial services, to reign in their own wretched excesses and voluntarily re-invest part of their lofty salaries and perks to keep employees on the payroll.
Entitlement and greed are the only words I can find to describe $18 billion in bonuses given during the last two months of 2008. At the same time that one million people were being laid off, including at these very firms that were giving bonuses to a select few. Who paid the bill that allowed these corporations to party like it was 1999? U.S. taxpayers, courtesy of former Treasury Secretary Henry Paulson’s inability to ask for any accountability from the corporations receiving $350 billion in TARP funds. Who knew the “free market” could be so expensive? Heck of a job Paulie!
I’m sure some will scream “Socialism,” but socialism isn’t voluntary. No, the CEO Patriot Pledge is pure capitalism, rewarding people when they do well and refusing to grossly enrich failure any longer. I’m not disparaging wealth or begrudging anybody for achieving success, just asking for bonuses that are tied to real achievement.
How do we define excessive executive compensation? And how much money are we really talking about?
The Corporate Library examined the paychecks of just the CEOs of the Russell 3,000 (the 3,000 largest U.S. companies based on market capitalization) and calculated these executives were overpaid by $14.7 billion annually. This does not include the huge paychecks of COOs, CFOs, etc. It also doesn’t include tens of thousands of executives at smaller firms. My estimate is that up to $40 billion could be found to reduce layoffs just from excess executive pay.
Of course, some executives consider themselves worthy of any compensation, no matter how disproportionate or unwarranted. Just ask John Thain, former CEO of Merrill Lynch, who in a recent interview told CNBC that it was important, even in troubled times, to give top talent over-the-top paychecks.
Well if these top executives, at Merrill Lynch and thousands of other firms, are so talented, then how did we end up with 626,000 new unemployment claims filed just last week…with half of our 401(k)’s gone…and with, my personal favorite, a $35,000 executive commode funded from the public trough. Do these corporate “leaders” have no sense of decency?
Fortunately, there are some executives who get it. For example, Thomas A. James, CEO of Raymond James. Sound familiar? They are the sponsors of the stadium of the most recent Super Bowl. Raymond James had almost $3 billion in revenue last year. Yet, Tom James’ guaranteed base salary was only $325,000, less than 20 times the amount of the lowest paid worker at his company. As compared with the average CEO salary, which is 262 times that of the lowest paid worker. [Please note, for every “average” salaried CEO who cuts back his or her base salary to a ratio of even 40 times the salary of the lowest paid worker, almost 200 workers would keep their jobs.]
While the S&P sank 22%, Raymond James had a positive return for its investors. With the bonus he earned, Tom James’ total compensation was slightly over $3 million. But the key word here is “earned.” It is no accident that Raymond James has a conservative compensation philosophy and the company also did well despite the carnage in the rest of the market.
Compare Tom James to Robert Iger, CEO of Disney. According to Graef Crystal, compensation guru, Iger received $51 million during a year when his company suffered losses and layoffs. Or to put it in Disney language, Iger received a king’s ransom for a pauper’s performance.
I believe this is how it should be, a CEO with a relatively low guaranteed salary and a bigger upside if the company performs for both its investors and employees. More independence is also needed at the board of directors level, so CEO pay decisions aren’t “I’ll scratch your back, you scratch mine.” Finally, we need to clone Tom James to help create leaders that don’t view pay for performance as an escalator that only goes up for their benefit.
What is the CEO Patriot Pledge? It’s a plea to encourage American businesses to do what they have always done: lead the way with vision and creativity. Only this time the goal is not to just create a profit, but to keep people employed so there will be a market for our products and services.
In short, our turbulent times require a reversal of a famous quote: today’s “what is good for the country is good for G.M.”
CEO PATRIOT PLEDGE: As an executive my primary motivation is to act for the good of my company, not just my own financial gain. No one at our company will earn a guaranteed base salary more than 40 times of our lowest paid worker and we will offer the same health care and 401(K) matches to employees as we do for executives. We support pay for performance, so when our company’s performance serves investors and employees, we’ll share in the gains. When our company’s performance does not adequately serve our investors and employees, we’ll share in the sacrifice.
You can call this initiative naïve, but remember that a similar pledge, the Sullivan Principles, played a key role in ending apartheid in South Africa.
Greed isn’t good, it’s a symptom of poor impulse control and leads us down the path to more Lehman-Brothers-style-implosions. David beat Goliath and we can put an end to this fat-cat behavior. My single voice can be easily dismissed, but all of our voices can’t. Put the pledge on the bulletin boards of your company, send it to the companies that you own stock in and ask your friends and colleagues to do the same. Also pass on the link to the CEO Patriot Pledge video on YouTube. We need to all share in the sacrifice, but isn’t it time that our leaders actually led during tough times?
There is a saying, “To save one life is as if you have saved the world.” Executives, you hold the world in your hands. We can keep people employed and get our economy working again, but only if we work together to stop the madness.
About the Author: Bob Rosner is a best-selling author, award-winning journalist, and member of the Workplace Fairness Board of Directors. Sign a petition supporting the CEO Patriot Pledge or share your success stories at workplace911.com.