[Marxism] Captains of Piracy

Doug Smiley dougsmiley at sbcglobal.net
Sat Mar 19 05:13:47 MST 2005

Captains of Piracy

Published: March 19, 2005



In Russia, those who manipulate capitalism to gain
fabulous wealth are called the oligarchs, and they
sometimes end up in prison. Here we just call such
people C.E.O.'s, and we put them in prison less often.

This is the time of year when corporate financial
statements offer snapshots of their executives'
mugging shareholders. Over the next few weeks, we'll
find out precisely how much public companies overpaid
their chief executives, but the news filtering out so
far underscores the market failure in the boardrooms.

Carly Fiorina was fired last month as chairman and
chief executive of Hewlett-Packard. So why did the
board reward her with a total of $8.15 million in her
last full year before booting her out?

Then there's Michael Eisner, who is finally being
pushed out of the Walt Disney Company's chief
executive post for running his company almost into the
ground. Yet the Disney board recently gave him a $7.25
million cash bonus.

Both instances are a reminder that the executive suite
in America is the last bastion of socialism in the
world today. If Kim Jong Il traveled to America, he
would be bewildered by most of corporate America but
would immediately feel at home on a board's
compensation committee.

A study for The Wall Street Journal by Mercer Human
Resource Consulting found that at 100 major U.S.
corporations, bonuses for C.E.O.'s last year rose more
than 46 percent, to a median of $1.14 million. Both
the amount and the percentage increase were the
highest since comparable studies began five years ago.

Companies have shaved costs by laying off workers and
reducing health care coverage - and then using those
savings to slather more pay on top executives. It's
true that companies are now cutting back on stock
options for C.E.O.'s, but it's hard to be impressed by
that restraint when bonuses are soaring.

Since 1993, the average pay for C.E.O.'s of the S.&P.
500 companies has tripled to $10 million at last
count, while the number of Americans without health
insurance has risen by six million.

If America's chief executives really earned their
money, I'd be more sympathetic. But in 5 of the 100
companies in The Journal's study, bonuses rose as the
companies' income dropped.

As John Kenneth Galbraith once put it: "The salary of
the chief executive of a large corporation is not a
market award for achievement. It is frequently in the
nature of a warm personal gesture by the individual to

Indeed, C.E.O. pay increased most rapidly at companies
with weak governance and few shareholder rights,
according to a study this year by Lucian Bebchuk of
Harvard and Yaniv Grinstein of Cornell.

That study also found that public companies devoted
about 10 percent of their profits to compensating
their top five executives, up from 6 percent in the
mid-1990's. That's a hijacking of corporate wealth by
top managers.

Companies typically claim that C.E.O.'s are rewarded
highly only when they outperform their peers.
Poppycock. One study found that when companies didn't
outrank their peers, they just redefined their peers.

Another study found that of the 1,000 largest
companies, two-thirds claimed to have outperformed
their peers. That's the "Lake Wobegon effect": All
C.E.O.'s in America are paid as if they were above

If only my buddies determined my compensation: I'd
like my earnings "peers" to be a New York journalism
figure and someone with an interest in the third world
- people like Rupert Murdoch and Bill Gates. What a
bonus that would be!

Boards sometimes argue that they need to pay huge sums
to hang on to talent. Really? Consider Mr. Eisner, who
did a great job in his early years but has been a
walking pay scandal ever since Disney earnings fell 63
percent in 1993 (after an accounting change) and he
received $203 million. He has been so desperate to
stay at Disney that he virtually Super-glued himself
to his chair. If the board had wanted to pay the
market price necessary to keep him, it could have
offered a penny.

Or less.

Brian Halla, the C.E.O. of National Semiconductor,
received a $5 million bonus last year. But he told The
Wall Street Journal, "I feel I should pay somebody for
doing this job." Now there's a smart suggestion.

So I called to ask Mr. Halla why, since he feels that
way, his board shouldn't save the shareholders a
bundle and charge him a fee to keep the job. He didn't
take my call.

E-mail: nicholas at nytimes.com

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