Considering the failures in the banking and real estate sectors, 2008 might cough up a few more lottery-like payouts. What stands out is the effort to spin away the massive numbers and distance them from the word “severance.” Call it whatever you want, but when someone such as Nardelli of Home Depot walks away with $209 million after being a failure is amazing. Absolutely amazing.
Of course, take a look at O’Neil of Merrill Lynch. They still have yet to reach the bottom of write-downs, already in the billions, and yet he was given a comfortable $159 million. If these people want to dissect the names (severance or stock or whatever) to make some committee feel better and avoid that nasty “severance” word in public, they must think that people are stupid and maybe they’re right. Why did O’Neil even receive so many shares of ML stock that is part of his compensation plan? Because he had record numbers, based on fluff. You know, the junk that they are writing down which has forced the company to beg for billions in foreign investment. To untie the two is ridiculous. Merrill has had to write down this rubbish, though O’Neil only has to write down his signature for his new mansion.
A list of jumbo payouts and more after the jump.
What stands out to me is that there is no link between honest performance and payout. Many of these people were in the twilight of their career or can at least walk away and retire with these packages. What is the incentive to do the right thing? If you can find it, help me out because I can’t see it. Someone like O’Neil can just say “hey, that business just didn’t go well” and that is that. (It will be interesting to see if he gets dragged in on any of the lawsuits that are flying around.) These people are still in the same social circles with all of the trimmings. No shame or threat of paying back stock based on performance, that was all junk. They go to the same country clubs, the same yacht clubs, same season tickets to the opera, sitting on other corporate boards and probably now have more time to spend with their alma mater. Lucky them.
What’s the downside here? Oh sure, they probably don’t like the hits to their ego in such a public forum but other than that, there’s little change. They can rely on a friendly media who provides some cover by telling us all that “that mega payout is not really severance, it’s what was owed.” Are they serious? Companies will continue to separate the links between all of this money as long as they can get away with it. Just as they re-package bad debt and sold it, they are re-packaging severance and calling it something else.
A large part of this issue is because we have executive payouts thrown in our face day after day. At the same time, we look at our own benefits shrink and our own pay not keeping up with the growth at the top. People in the boardrooms obviously have a lot of responsibility and yes, they can be fired quickly due to their high profile. But of course, people below aren’t exactly sitting on solid ground either. Just what does it take to force this dysfunctional system to change?
The system that we are creating in the US is what I have seen so many times in the developing world, where the divide between rich and poor and enormous and the middle class is an afterthought due to it’s small size. Fortunately our own middle class is larger though we can’t continue to batter the middle class if we expect to have a properly functioning society. Rewarding someone for great work makes all the sense in the world. Rewarding someone for rubbish is rubbish. It’s time to take a step back and modernize.