OK, we've had it. Let's round up the pitchforks and torches and storm the gates. Our fury has its roots at both ends of the social-economic spectrum. At one end are some malefactors at the highest reaches of corporate America. At the other, we see unions holding us hostage with hopelessly unsustainable retirement health and pension benefits.
I'm reminded of the story of an executive at Drexel Burnham (a firm long gone) who was so enraged at receiving his inadequate $16 million year-end bonus check that he threw it on the floor and started jumping up and down on it while screaming obscenities at his hapless boss.
In the same vein, last Sunday's New York Times ran a long, full-page story of the demise of Merrill Lynch, chronicled the downfall of CEO John Thain, and pointed out that in the crisis he had hired two of his former Goldman Sachs colleagues. One was paid $25 million to come to work, and he has since left. The other was paid $35 million and he is still there, but he insisted on taking a two-week "vacation" before coming to work. Meanwhile, Merrill was in its death spiral while this would-be savior was "on break."
John Thain himself took a two-week vacation in December to ski at his home in Vail, expressing a fit of pique because the bank had refused to pay him the $40 million he had demanded for selling his bankrupt firm to Bank of America,
Who are these people? What kind of system do we tolerate that allows them to exist in corporate America? I can understand someone making a lot of money when they start a company and build it over many years, like Bill Gates or Larry Ellison.
What I don't understand is the logic of paying someone with little more than a mastery of corporate politics to parachute in to a CEO slot and be paid an obscene amount of money for results that will largely be determined by random events â€” events like the overall stock market conditions, economic conditions, industry conditions or the results of corporate planning and investment based on decisions made years earlier.
In other words, "luck." No other industrialized country tolerates corporate governance that has run this amuck.
On the union side, let's look at governments because they impact all of us. Our state's new four-day workweek for some is a step in the right direction. Cutting work time by one-fifth would reduce costs by 20 percent.
For most state and local government administrative jobs, the same amount of work will undoubtedly get done.
Think about the DMV. How inconvenient is it to have just four days a week available. Online, they're there 24/7.
I say, "Bring on the furlough at any government showing signs of financial distress." Bring back the fifth day only when we desperately need it.
Let a few cities like Vallejo go bankrupt. This will trigger a restructuring of retirement benefits to something reasonable. How unreasonable are they? Check out the latest Forbes magazine article entitled "Guilt-edged Pensions." If enough local governments actually do go bankrupt, the rest will see the handwriting on the wall.
Most unions will see the value of dealing today with a solvent institution instead of a bankruptcy judge with "cram-down power" over those pension benefits. Once bankrupt, all bets are off and membership could wind up with next to nothing. If you're a public servant looking forward to that $400,000 inflation-adjusted annual retirement income 25 years after retiring at age 55, here's a nice visual image: Bodie â€” that ghost town on the back side of the Sierra's. Imagine trying to wring retirement plan funding out of the long-gone citizens of that place. Settle for something reasonable while your benefactor still exists.
As for the corporate governance issue, we have the leverage right now to heighten the obligations of corporate directors and establish enforceable guidelines for executive compensation.
Thanks to IRA and 401(k) plans, there is a huge fiduciary obligation spread over 80 million citizens to an extent that didn't exist 20 years ago.
Directors themselves should reflect on this and come up with their own solution before the rest of us rise up and sue them out of existence.
They can start by banning compensation consultants from boardrooms.
Then, ban directors who serve as corporate executives elsewhere from serving on compensation committees.
In the meantime, the rest of us can be fighting to make this law. Sharpen those tines and light those torches.