Robert Heller
Twenty wealthy Americans have just made off with booty exceeding a whole year’s net profit for Merrill Lynch, the world’s largest securities firm. You don’t need the FBI to track down the suspects. They head the 20 top companies, from Walt Disney to General Electric.
Their combined salaries, bonuses and long-term compensation (mostly stock options) last year topped $2-billion.
Nor were all these bosses shining stars. In the latest rankings by Fortune magazine, Disney came 162nd out of 500 companies in total return to shareholders, while General Electric was 117th. Yet the gigantic remuneration is presented as nothing compared with the “shareholder value” (stock market valuation) they have “created”.
Thus General Electric’s celebrated Jack Welch, having already pocketed $1-billion, gets another $43-million in this, his final year, as an incentive to meet his targets. Would Welch otherwise play golf and let the company (and his shares) go?
Devil’s (or Welch’s) advocates have found a new argument in the bountiful rise of the United States economy. According to Business Week magazine, the US has had an expansive eight years. While Europe struggles “to boost growth and entrepreneurialism” and Japan is “mired in recession”, “US executives are energising older companies and creating new ones daily”.
If Europe wishes to match US performance, companies must match US pay, right? The pay bonanzas in the US have long pushed European rewards upwards. Britain is in the vanguard, with men like Jan Leschly of SmithKline Beecham, whose latest package is worth 90-million.
But Business Week asks a pertinent question: “Are the sky- high pay and the sky-high performance linked?” Actually, sky-high only applies to the pay.
Outside the rocket-engine of US economic out-performance, the achievement of major companies has been patchy. Coca- Cola has been slipping since the untimely death of Roberto Goizueta, and Disney’s – whose head Michael Eisner was last year’s highest-paid boss – earnings and relative stock price have lagged in the past two years.
The key electronic fortunes have been genuinely self-made. There would be no Microsoft without Bill Gates, no Oracle without Larry Ellison, no America Online without Stephen Case. Their position as founders has made them super-rich. Yet even founders can stuff themselves with stock options. Last year McNealy pocketed $46-million and Case $159- million. Wealth raises the threshold of avarice.
The greed has surged despite constant sniping from political critics ranging from President Bill Clinton downwards, from business mavericks like billionaire investor Warren Buffett, and from assorted academics.
The explanation is simple. There is no countervailing force: no regulation, no shareholder opposition, no restraints from boards. The latter are too mindful of their own rewards.
Like robber barons of old, the corporate overlords can in effect write their own cheques. Their rewards make no concessions, even to error. Leschly’s package was approved despite SKB losing heavily on reselling a US drug distributor.
The pay scandals – for that’s what they are – have created a circle, vicious or virtuous according to taste. What will the 20 do with their $20-billion?
They will largely invest the loot in equities, which will gain from the purchases. If equity prices rise further, still more CEOs will pocket and reinvest more option wealth.
And while self-made in one sense (as they really fix their own remuneration), these people have not made their fortunes. They have snaffled them from acquiescent shareholders.
Never have so few owed so much to so many.