The No Shame Life
I’ve previously written a series of “No Shame” posts about extravagant CEO compensation. (Click here, here, here, here and here.) A recent headline in the Los Angeles Times (“For CEOs, a reversal of fortunes”) made me wonder if my posts had become obsolete The article under the headline describes hard times for CEOs in the 100 largest corporations in California. On average, they were paid 10% less in 2007 than in 2006. On balance, however, the article demonstrates that “No Shame” has become a way of life for CEOs, at least for those in the big companies where large numbers of employees work.
The biggest CEO comp cuts occurred in the troubled housing and mortgage industries. Countrywide Financial (which posted a $704 million loss in ’07 compared with a $2.7 billion profit in ’06) slashed–slashed–the CEO’s total pay from $48.1 million to $10.8 million. Will the poor bugger survive? But not all troubled companies followed suit. KB Home lost $929.4 million in ’07 compared with a profit of $482 million in ’06 but increased the CEO’s total pay from $5.9 million to $16.4 million. Well, well.
Despite shareholder activism to curtail outrageous pay and new rules to require boards of directors to disclose and explain total executive compensation, CEO comp remains inexplicable. Corporate directors and executives live on another planet, oblivious to the Grand Canyon-like gap between what regular employees earn and what CEOs earn.
When a company has financial trouble, the first thing a CEO does is lay off employees, sometimes by the thousands. These employees haven’t been able to sock away enough money after only one year’s salary to comfortably make it through the rest of their lives. They do have families and financial obligations, however. What about a pay cut for the top executives to save those jobs?
The argument against this approach is that the best executives would leave. Top talent would go elsewhere. So, unless you pay your CEO between $5 million and $100 million per year, you’ll have to settle for mediocrity. Sorry, but I don’t believe that. I do believe you’d unleash new talent so excited about being paid between $1 million and $5 million that your company’s leadership would experience energy not seen for decades. I do believe you’d find leaders who understand that running a company doesn’t mean getting rich in one year, but doing so over a lengthy period of good results.
I know people in top positions have to be motivated. I also know money is a key motivator. But have we lost all sense of reasonableness? Is there no compass of fairness that makes those running corporations cringe when they see the disparity between the compensation of front-line employees and C-Suite employees?
Believe me, I’m not against making money. The freedom to do that has helped make this country what every other country wants to be. When this freedom has been abused, though, this country isn’t a model for much of anything. This is nothing new. The robber barons of the late 19th and early 20th centuries weren’t given that moniker because they were good guys. Some will argue that these financial elites gave our country the economic foundation that still supports us–but by exacting what price from their employees and regular citizens?
What does all this have to do with employment law? Without the robber barons, unions wouldn’t exist. Without today’s overpaid executives, employment litigation wouldn’t be booming.
We don’t want the no shame life. We want the good life. Unfortunately, despite our best intentions, the good life has become one where there is no shame.
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About Chris Parker
Chris Parker's practice focuses on the representation and counseling of companies in matters pertaining to the workplace and the protection of their intellectual property and trade secrets. In addition to serving as an advocate for clients, Mr. Parker is also trained as a mediator and frequently serves as a third-party neutral.
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About Jimmy Daniel
Jimmy Daniel provides counseling to businesses of all sizes related to the employment relationship. He assists in the drafting of employment agreements, policies, and handbooks, as well as provides guidance related to compliance with federal, state, and local legislation such as the Fair Labor Standards Act and the Family and Medical Leave Act.
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About Larry Bridgesmith
While serving in an Of Counsel relationship with the firm, Mr. Bridgesmith also serves as the Executive Director at the Institute for Conflict Resolution at Lipscomb University and as an officer and principal in Strategic Resolutions Group, LLC. In these roles, Mr. Bridgesmith brings over 30 years of legal experience in dispute resolution and innovative workplace strategies to clients, students and business entities alike.
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A college friend is CEO at Autozone and his compensation is nothing in comparison. There are still good guys out there running businesses.
Linda, thanks for making this point. You’re exactly right, although the increasing gap between what ALL people at the top and other people up and down the line concerns me.
When I used to do seminars around the state, Auto Zone always had several people in attendance when I’d go to Memphis. While I don’t know a whole lot about the company, it’s nice to have it headquartered in Tennessee. Your friend does seem to be in what I would call (and I’m being subjective like everyone else is, of course) the reasonable range. It appears that AZ has around 55,000 employees, total annual sales of $6 billion, operating income of $1 billion, and net income of $500 million. The CEO appears to receive between $2.5 and $3 million in total compensation. To continue my point and hopefully not go too far, is anyone really worth that much money per year? I don’t think there’s a black/white answer to that question. I just think it’s one that CEOs and everyone else need to ask and try to answer every so often.
Thanks again for weighing in.
I’ve always believed that to see change, it must come from both external and internal forces. I am a former employee of KB Home. A former Countrywide employee that I worked with and I are bringing separate Whisteblower lawsuits against KBH and Countrywide. We are looking for other former employees to share similar experiences so that the change we seek will come about and be significant. Thanks. I’m glad to provide copies of the suits.
Victor, don’t think I’ve ever received a comment quite like this one. It puts some flesh on some of the bones of the words that appear on this blog and others. Thanks for your offer to send copies of the suits, but to be honest, I have more than I can read right now. I would be very interested, however, in receiving updates on how the suits are progressing and particularly on how they turn out. Thanks for weighing in.