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The Salary for Failure

Thursday 05 February 2009

by: Philippe Escande  |  Les Echos

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Philippe Escande argues that the next bubble about to burst is that of CEO salaries - for all industries. (Photo: AFP)

    What's the salary for failure? Five hundred thousand dollars, answers Barack Obama. That's still a lot of money, all the same, but apparently it is only a tenth of the annual emolument for a big banking boss, such as Citigroup's CEO. So it's a form of divine punishment the very Protestant president of the Republic wants to inflict on those miscreants of fiw crumbs before making their final bow.

    The straw that broke the camel's back, if we dare to describe it that way, given the sums at play, was the publication of the bonuses garnered by Wall Street in 2008: close to $20 billion for establishments that are already in large part enjoying the largesse of the American government. And consequently of American taxpayers - over three million of whom have found themselves unemployed in the same year.

    It's no longer anger grumbling across the Atlantic, but a revolt against an oblivious financial sector that danced on a volcano without ever anticipating the danger. Finance has become excessively puffed up these last few years; it is deflating all at once, and the salaries of its CEOs along with it.

    The Obama decision will not end on the shores of the Atlantic, and Europeans could very rapidly fall in behind him. With respect to capitalism, America still sets the global standards. Nicolas Sarkozy had already taken this route by more strictly conditioning his new assistance to banks. For those that follow - for there will be more - he could be even more demanding.

    More generally, however, we see another bubble getting ready to burst: that of CEO salaries, for all industries. Obama's 500,000 dollars are significantly less than the average pay for big American and European CEOs. In 1960, an S&P 500 CEO made on average twice as much as the salary of the president of the United States, versus sixty-two times today! Perhaps they haven't all failed like the Wall Street bankers, but nonetheless, do they deserve such emoluments? The original idea was to attract the best people and to motivate them by aligning their compensation with stock price progression. With the collapse of the Stock Exchange and the ruin of shareholders, the myth of the all-powerful CEO is over.

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    Translation: Truthout French language editor Leslie Thatcher.

  

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Comments

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What is meant by "the best

 Fri, 02/06/2009 - 20:52 — Anonymous (not verified)
What is meant by "the best people" in the Escande article? In the US "the best people" are of two kinds: 1] those who follow the standard corporate practices for maximizing profits, 2] those who are truly creative insofar as figuring out a] how to get around the law, or b] how to corrupt the political system so that what was illegal becomes legal. LES ECHOS of what? The WALL STREET JOURNAL? All the Republicans have left are their "wedge issues," the crusades against abortion and homosexuality; there are too many Americans now who realize that no-regulation capitalism means inevitable economic disaster. There's even less cry against "socialized medicine" as in France, and indeed "socialism" in general is not a word to evoke a knee-jerk revulsion. So M. Escande why don't you take another look? The situation is much more critical than the lightly amused tone of your article.

CEO salaries are only as

 Sat, 02/07/2009 - 01:19 — mysterioso (not verified)
CEO salaries are only as high as they are because WE allowed it. WE gave these men/women the status of super heroes and gods. And, WE didn't blink in the last couple of decades when their compensation shot up. They were "holy". Beyond doubt in our minds because they kept waving the bottom line in our faces. That waving blinded us and the SEC and Congress and anyone else who was looking from seeing what was really going on. Only a few who possessed special filters to see through the fog of self perpetuating myth were able to see the underhandedness. Those few were maligned, mistreated, discredited, and lost their jobs for speaking up. SHAME ON US, the SEC, Congress, and SHAME ON THE 4TH ESTATE. WE let our selves down and WE were let down.

Where do we start with this?

 Sat, 02/07/2009 - 05:09 — WCH (not verified)
Where do we start with this? The CEO compensation is a part of the problem. The short term emphasis on stock price is part of the problem. Deregulation and regulators turning a blind eye while Ponzi schemers crank up multi billion dollar bubbles is part of the problem. Revoking the Glass-Steagall act is part of the problem. "Funny money" subprime mortgages are a big part of the problem. The small guy so thoroughly propagandized by the juggernaut PR machine of the Power Elite that he/she consistently oversimplifies and consistently votes against his/her best interest is part of the problem. LaBoitie (another French guy) was prescient when he postulated that emperors and tyrants could only wreak their havoc because WE gave them the authority. WE volunteered our subservience. It is time to take control back. But history is pretty clear that we will not. Unfortunately, the problems are complex, so the solutions cannot be overly simple, as may be suggested by Mr. Escande's analysis.

You are late in your

 Sat, 02/07/2009 - 15:18 — Anonymous (not verified)
You are late in your evaluation. Germany had already put a program in place 2 or 3 months ago that limited CEO compensation to Euros 500,000 and no bonuses. Plus the German plan provides that all profits and dividends flow back to the government and the receiving company is subject to reviews by 2 commisions to evaluate their operating plan versus projected profits and their customer and employee policies and relationships. If a German company/bank finds this too restrictive, then "no money". No tickee, no laundry! If the US had opened it eyes to what the Europeans were doing several months ago, this could have been part of the US plan earlier in the game. The US, as usual, is a late comer and is behind the curve!