The news that Rick Wagoner was about to receive $23 million as he leaves his post as General Motors CEO left me sick to my stomach. What have those GM directors been smoking?
As CEO for more than nine years, he has certainly reaped well in excess of $100 million. The company is about to say "no" to thousands of employees who thought that part of their compensation was the promise of health insurance benefits for life. If circumstances force GE into bankruptcy, far more promises will be broken.
A quick search of old New York Times articles brings up stories from the 1950s through the 1970s that talk about GM executives being the highest-paid managers in the country. The cultural arrogance seems to cling to that company like a wet suit even as the directors who allowed it are staring into the abyss.
As Assistant Treasury Secretary Larry Summers said in after-the-fact support of the AIG bonuses, "we're a country of laws, and contracts can't be 'abrogated.'" Well, Mr. Summers is wrong.
Just saying "no" wasn't any problem for Warren Buffett when he infused the capital that saved Solomon Brothers years ago. He just told those brokers and managers who had been derelict in their duties that they weren't getting anything. The fired president, John Gutfreund, sued for his contractually guaranteed $56 million. He received exactly zero. That can serve as an object lesson for us today. As taxpayers, we're effectively running a number of these large troubled companies, and we should be adopting the Warren Buffett approach. If public servants in Washington are showing too much hesitation to follow the dictates of Midwestern common sense, we should fire them.
Speaking of hesitators, former Professor Summers is supposedly one of the smartest people in government. He was the youngest person to ever receive tenure at Harvard, and he later became its president. However, I have this sinking feeling that just being smart may not be enough.
I'm reminded of the late David Halberstam's book, "The Best and the Brightest," which told the story of the geniuses who were the architects of the Vietnam War. Robert MacNamara, McGeorge Bundy, Henry Kissinger and others at the center of power thought they had it all figured out. Instead, as MacNamara confirmed in his book and the movie, it was a disaster. Similarly, in the face of this economic tsunami, there are growing signs that too much genius is devoted to protecting the original Wall Street perpetrators and friends rather than accomplishing true reform.
It is reassuring to know that there are now tools in place that can limit executive pay as long as they are enforced. The Sarbanes-Oxley law is beginning to show some teeth, as a Delaware judge recently let stand a lawsuit against directors for agreeing to a huge golden parachute for Citigroup's departing president in 2007.
Compensation committees are suddenly operating under a microscope. Presumably no director, committee member or not, wants to spend the next three years sitting in depositions and wondering if the liability insurance offers really enough personal protection. Citigroup's stock, having tripled from its low of about one dollar, may triple yet again if the directors have to personally pay for that exit package. Hopefully this sends a message to all other spineless directors.
Let's look at some of these improvements we are already seeing. In response to shareholder activism, Home Depot requires two-thirds of its independent (nonmanagement) directors to approve its executive compensation packages. Tamping down salaries of high-profile managers should help to reduce expectations all the way down the food chain, to the trenches where the work gets done. The net effect should be more fiscally-responsible companies that will, in the end, make more money for stockholders Ã³ starting with the $3 trillion worth of 401(k) investors.
Meanwhile, the reassuring rise in market values is an indication that "the music is not as bad as it sounds." Ford Motor Co. intrigues me because I have this fantasy that our sole solvent auto manufacturer reflects the level of personal responsibility that characterizes the vast majority of the American business community.
Ford is, after all, still a family business of sorts. The founder's grandsons care more about their reputations than the apparent "what's in this for me" mentality that runs too much of big-company America.
Fortunately, 75 percent of us work for companies with less than 100 employees, a size where business is transacted based on relationships and reputations. This is a world where any company leader would be mortified at the thought of $23 million in severance pay while those who made it possible got the shaft.