June 25, 2008

Overpaid CEOs Make Out Like Bandits

By Donald G. Mashburn

The excessively high pay of CEOs of companies that don’t perform well is bad business on its face, and sometimes has the looks of legalized banditry in the boardroom.

That it’s bad business should not be debatable. That it has the same effect on shareholders as outright boardroom banditry should not be, either. But compensation committees and even the business executives themselves often rationalize the excessive pay.

Someone should explain to the whole kit and caboodle – or cabal – a basic business principle: Managers should be paid well if they do their jobs well. A corollary: No one should ever be paid an excessive amount unless he or she owns something.

And the incentive plan should be simple: Do a good job and you get to keep it.

Published data, based on information from SEC filings and Standard and Poors, show that many CEOs in 2007 received huge increases in total compensation, compared with their pay in 2006, and despite the decreased price of their company’s stock.

The big increases in pay were without regard to basic business principles, if value to the stockholders is considered. The comparisons show that CEOs too often get the golden egg, while shareholders – who are the owners – are left with a plucked goose that’s in worse shape than the year before.

Some examples of 2007 compensation are enlightening. Topping the Top 10 was John Thain, of Merrill Lynch, at $83.1 million. That’s an eye-catching number by any measure, but what makes it an eye-goggler is that in mid-January of 2007, Merrill Lynch stock topped $98 a share, but it closed the year at $53.68. That’s a whopping loss in value of 54 percent to shareowners.

Most firms, of course, can’t funnel “Merrill Lynch size” piles of the shareholders’ money into the pockets of their CEO, and without regard to company performance. Still, many underperforming companies find ways to overpay CEOs.

Joseph P. Campanelli received total compensation of $5.6 million for 2007, which was 3.7 times his 2006 pay, while the stock price of his company, Sovereign Bancorp, declined by 55 percent. Apparently the compensation “sentinels” saw nothing wrong with nearly quadrupling the CEO’s pay while the shareholders lost nearly half their investment under his watch.

Fifth Third Bancorp’s Kevin Kabat was another CEO that got a hefty windfall despite his company’s poor market performance. Kabat received a three-fold increase in total compensation of $10 million, while shareholders got a decline of 38.6 percent in their stock value.

The abuse of shareholder assets is widespread when it comes to ladling out big money. The prime suspects are often “compensation committees,” who too often are beholden to top management, supported by weak directors.

Some cases of financial gluttony and wrongdoing in high places get prosecuted – enough to make us wonder just how many other CEOs, aided by their enablers, are guilty of legalized boardroom banditry.

In any event, a convergence of greed and arrogance seems to allow some corporate insiders to enrich themselves far beyond any objective evaluation of their worth, if that evaluation includes the performance of their company.

As the above samplings show, at some companies there’s no correlation between CEO compensation and company performance. Apparently weak or conspiring directors can’t or won’t protect shareholders.

It’s just as apparent that shareholders and regulators should hold directors directly responsible for passing out corporate funds like “found money.” Unless a CEO owns a big chunk of the company, the compensation should be good, but reasonable.

And his incentive plan should be: Do a good job and you get to keep it.

Jesse James was born too soon. Today, with his talent and hankering for other people’s money, he could have made millions as a modern-day CEO, instead of risking life and limb for mere thousands.

If Jesse could have cleaned up like some of today’s corporate “leaders,” he would never have gone near a bank or train.

Was the Iraq War Worth It?

By Jeff Lukens

They say if it bleeds, it leads on the nightly news. The recent silence from the mainstream news media on Iraq, however, is speaking volumes. While the war remains unpopular, our success there has been unmistakable. The Iraqi people, with the help of the U.S. led coalition, have succeeded in establishing the world’s first Arab democracy.

Beyond the Iraqi Constitution and the elections, Prime Minister Nouri al-Maliki has emerged as the true leader of the governing coalition. He has battled and won against fellow Shiite and problem child Muqtada al-Sadr and his militia. The Sunni, Shiite and Kurd people work together in a national Iraqi Army. Together, they are taking their county back from the foreign insurgents that have invaded their homeland. Iraqi troops took the lead in clearing Basra and Sadr City, and are now finishing off the insurgent remnants.

No one likes to go to war, but even an elective war is sometimes necessary. With all the consternation these past years, President Bush may finally be able to say “Mission Accomplished” to what he originally set out to do.

This we know: Saddam had Weapons of Mass Destruction. He even gassed his own Kurd and Shiite populations in the 1980s. What happened to those chemical weapons? Who knows? Whether they buried them in the ground somewhere or trucked them off to Syria, we had every reason to believe he had them.

In the months leading up to the war, Saddam acted as if he were hiding a nuclear program by obstructing UN inspectors visiting his installations. We have since concluded that his nuclear program was still in its infancy, but we could not have known that then. Saddam’s power was in his bluff, but his bluff was called.

Following 9/11, we had to show we meant business in the fight on terror. Afghanistan fell quickly, but it was a sideshow. Look at any map of the Middle East and smack in the middle of it is Iraq. Think about it, if we could flip Iraq from a dictatorial state that sponsored terrorism to a democratic republic, there would be profound implications throughout the region.

When most of the 9/11 hijackers were Saudi, we needed to show Saudi Arabia, as much as anyone, our resolve. Regime change in Iraq was militarily and politically feasible, so Iraq was where Bush chose to make his move.

Though our casualties have been mercifully low, the political angst against Bush has grown virulent. Maybe Bush could have handled the occupation better, and the war should have been over more quickly, but our reason to go there was strategically sound. Bush made the proper decision with the urgency of 9/11 still fresh, and with the information available to him at that time.

In the early years of the Civil War, Lincoln lost battle after battle with a revolving door of generals who could not or would not fight Robert E. Lee. Lincoln finally found his general with Ulysses S. Grant who took after Lee’s army and ground it down.

Bush had a similar problem with commanders who would not adapt to insurgents who did not wear uniforms and hid among the people. But Bush found his Generals in David Petraeus and Ray Odierno. The counterinsurgency strategy they employed made quick work of our enemies in Iraq.

In the U.S., however, sometimes-hysterical liberal opposition to the war has threatened to unravel all that we sought to achieve. Liberals have never considered Bush a legitimate president. His presidency is too emotional a subject for them, and reasoning with them about any aspect of it has become nearly impossible.

But for anyone who still cares and is willing to listen, what we are seeing in Iraq today is exactly what we set out to accomplish from the beginning – establish a beachhead for democracy in the Middle East.

The promise of freedom for the oppressed is America’s greatest strategic weapon in this war. The struggle in Iraq is only one campaign in the larger global conflict. History will judge the effort, but early indications are that President Bush’s decision was a worthy step in the war on terror.

Jeff Lukens is a staff writer for the New Media Alliance, Inc.

Editor’s Note: The views and opinions of contributors are their own, and are not necessarily those of Sage Commentary.