The Ghost of Executive Compensation Past

In recent weeks, I’ve tried to cover a lot of stuff about the current economic crisis. Some of what I’ve written about has had to do with executive compensation. I don’t think that executive comp and the greed associated with it are the only causes of the crisis, but they are contributing factors.

The Wall Street Journal details facts about 15 ”corporate chieftains” who harvested more than $100 million in cash compensation and proceeds from stock sales during the past five years. What makes this of particular interest is that these chieftains were in industries at the center of today’s economic crisis. The study reported on by the Journal also reviewed the compensation of the top executives at 120 public companies in the banking, mortgage, finance, student lending, stock brokerage and home building industries during the same period of time. The total they were paid is $21 billion.

Those numbers aren’t surprising, given the way executive comp has been handled in the past. Now, there’s talk of changing the way executive comp is done. Cynics will say it’s just talk, and that may be true. But perhaps the hubris of corporate officers and directors is on the verge of being cut down to size so that executive comp is determined differently, more reasonably, in the future.

I may be wrong, but it seems to me that our system of capitalism crossed the Rubicon during the past few months. There have always been critics of the obscenely excessive compensation paid to big dogs. But the prevailing view seems to have been that even if you accept the criticism as true, these same big dogs could have just as easily ended up in relative poverty. In our system, there will be some excesses when there’s a boom or bubble, but when there’s a bust or burst, those people who risked a lot, maybe everything, will be left with little to nothing.

Maybe that was the case once upon a time. It’s clearly not now. No one wants to say this, but it seems undeniable that we’ve entered some phase of quasi-socialism. Financial giants and their chieftains have been bailed out instead of being called upon to pay the piper who led them down a road of destruction. If the big three automakers can hang on until there’s a new Congress in place, they’re likely to be bailed out too.

The risk-reward model has been thrown out the window. If you can’t lose it all, then you can’t make it all either. I’m not arguing for or against capitalism or socialism. I’m just trying to be honest. If I’m wrong and the government not only bails out the big dogs (whose employees have their own form of bailout, usually called a layoff) but allows them to to be paid in the future the almost incomprehensible amounts of executive compensation past, then we’re in neither a capitalistic nor socialistic world. We’re in a world of government-sponsored finanacial debauchery.