Executive Compensation – Is It Out of Line? Part #3

Wednesday, June 30, 2010

So how much compensation is executive compensation? The worth of an executive is in the eye of the beholder, who, it this case is the board of directors. Like the owner of an MLB team looking for a winning manager, the board of directors is winning to pay some pretty big bucks to ensure their company makes it to the World Series. However, even if a manager has taken his last 10 teams to the World Series does not guarantee he will take your team there. After all, this is just one man and that is often the argument used my many to support their position that executive pay is out of control.

As reported in CNN Money by Jennifer Liberto, a senior writer with CNN, 4 bank CEO’s admitted to Congress on January 13, 2010 that their banks had taken on too much risk. Lloyd Blankfein (Goldman Sachs), Jamie Dimon (JPMorgan Chase), John Mack (Morgan Stanley), and Brian Moynihan (Bank of America) testified before the congressional Financial Crisis Inquiry Commission. Commission was looking into who knew what and when was it known.

These 4 CEO’s received more or less $60,000,000,000 out of an estimated $204,808,576,320 for all banks, that is almost 30% just to these 4 banks. This “loan” was to be used to stabilize these and other banks to avoid a catastrophic melt down of the worldwide and US banking system. Whether or not you want to admit it, you do not get to be the head of any of these 4 banks unless you are damn smart. Moreover, you have a cadre of staff that are may be even smarter that you to keep you out of the swamp. So how is it that these 4 men and their small army of staffers failed to see the risks associated with the investment schemes that triggered the Great Recession?

On Tuesday, May 18, 2010, The New York Times published compensation data supplied by Equilar, the executive compensation research firm, for these 4 CEO’s.
                                                  ------------ 2009 --------------   ------------- 2008 ------------

Name -------------------------- Bank ----- Base Pay ------ Total Pay Base Pay ----- Total Pay
Lloyd Blankfein  (Goldman Sachs),     $600,000     $900,000*    $600,000   $40,900,000*
Jamie Dimon     (JPMorgan Chase), $1,000,000  $1,300,000* $1,000,000   $35,700,000*
John Mack        (Morgan Stanley),   Not Listed
Brian Moynihan (Bank of America)   Not Listed
*Various stock options

It may be many years before we learn what these 4 CEO’s where thinking when they signed off on such risky speculation as investing in mortgage loans from homeowners whose incomes and assets had not been verified. I stand to repeat myself, “The worth of an executive is in the eye of the beholder, who, it this case is the board of directors.”