by Deb Cupples | Some economists anticipate that the number of U.S. jobs lost in October will be around 200,000 -- up from 159,000 jobs lost in September. A recent New York Times article says that major companies have announced intentions to cut workers from the payrolls, including giants like Alcoa, Bank of America, Coca-Cola, General Electric, Goldman Sachs, Merck, and Xerox.
I can't help wondering how many employees' jobs could be saved if those companies' Boards would simply cut executive pay. Let's look at a few executive pay packages, which -- no matter how you slice them -- amount to a redistribution of shareholders' wealth.
2007 Salary, Bonus, Incentives,
Perks, & Stock Grants*
|Alcoa||Alain Belda||.....$12 million|
|Bank of America||Kenneth Lewis||........$17 million|
|Coca-Cola||Neville Isdell||.....$18.5 million|
|General Electric||Jeffrey Immelt||.....$19.3 million|
|Goldman Sachs||Lloyd Blankfein||.....$53.5 million|
|Merck||Richard Clark||.......$12 million|
|Xerox||Anne Mulcahy||.....$11.5 million|
* Total does not include stock options, because 1) execs pay something for them, and 2) stock option values are hard to calculate. The total also does not include deferred compensation or pension growth. In short, the executives' compensation packages for 2007 likely exceed the totals listed in Table 1. The total includes stock grants, because they represent a transfer of company wealth to an executive (i.e., the company could sell those stocks and keep the proceeds).
Lets assume that the average non-managerial employee costs each company $100,000 a year (likely a high estimate).
Let's assume that each CEO is worth 25 times the average employee: i.e., execs are worth $2.5 million a year.
How many non-managerial jobs could be saved if the companies listed in Table 1 simply cut their CEO's pay to $2.5 million a year? See Table 2 (below).
|Company||$ Saved by CEO Pay Cut||# Jobs Saved|
|Alcoa||$9.5 million||95 jobs|
|Bank of America||$14.5 million||145 jobs|
|Coca-Cola||$16 million||160 jobs|
|General Electric||$16.8 million||168 jobs|
|Goldman Sachs||$51 million||510 jobs|
|Merck||$9.5 million||95 jobs|
|Xerox||$9 million||110 jobs|
Just by cutting CEO pay to $2.5 million a year, those seven companies could collectively save more than 1,200 jobs.
The news gets better, because CEOs are not the only executives and managers diverting company dollars away from the task of saving (or creating) jobs.
For example, Goldman Sach's top five executives got $324 million in compensation in 2007. I don't know how much was in the form of stock options. Even if half of it were in stock options, then $162 million was directly transfered to Goldman Sachs' top five execs.
If each of those five execs' pay had been cut to $2.5 million a year (a combined $12.5 million), Goldman Sachs would have had $149.5 million for non-managerial jobs.
In short, simply by cutting the top-five execs' pay to $2.5 million a year, Goldman Sachs could have paid nearly 1,500 non-managerial employees for a year.
I already hear resistance to idea of limiting executive pay. Two-point-five million is so small that nobody would take an executive job for such paltry pay.
First I'm not proposing a strict $2.5 million limit; I chose that number to illustrate a point.
Second, $2.5 million is not small potatoes. Even if the federal taxes ate up 60%, take-home pay on a $2.5 million salary would be more than $80,000 per month.
Third, the reason that many execs may find $2.5 million less than adequate is that executives have spent years persuading their Boards to continually inflate executive pay. If ALL COMPANIES deflated executive pay, the norms for executive pay would also deflate.
Lastly, there's this highly specious argument, which business columnist Steven Pearlstein sums up as follows in today's Washington Post:
"Paying the bonuses to successful employees is not only fair but is also necessary to attract and retain top talent. It hardly serves the interest of taxpayers if all the banks they invest in wind up losing top talent to all the banks they didn't."
I think Mr. Peralstein got this dead wrong -- given how some of Corporate America's highly paid "talent" has performed in recent years.
Despite highly paid "talent," Enron and WorldCom filed for bankruptcy protection in 2001 and 2002, respectively. At the time, WorldCom's was the largest corporate bankruptcy in U.S. corporate history.
Last month, Lehman Brothers filed the new-largest bankruptcy in U.S. history. Lehman's "talented" CEO -- alone -- made $350 million during the eight years leading toward the bankruptcy (about $43 million per year). I don't know what Lehman's top dozen executives pocketed as the company's "talent" drove the company toward Chapter 11.
Over the past couple months, AIG had taken more than $120 billion in bailout funds (loans from us taxpayers). AIG paid one top exec $280 million during the eight years leading up to AIG's need for a massive bailout.
I could go on and on (and on) with examples of executive "talent" that caused or allowed their companies to (in some respects) fail miserably -- despite the enormous compensation packages that said "talent" received.
Surely, the we-must-pay-major-bucks-to-retain-"talent" argument rings hollow.
Shareholders of public companies should be up in arms over executive pay, because every dollar funneled into an exec's personal pocket is one less dollar that could instead be spent on making a company more profitable.
In short, many executives are redistributing shareholder wealth to themselves and on a massive scale.
We taxpayers should also be up in arms -- especially given the more than $1 trillion we've committed to bailing out corporations whose woes have affected our nation's economy. The reason we taxpayers have committed money to bailing out big companies is that we figure it'll help our nation's economy.
One way for those companies to give back (i.e., to pitch in and actually help our economy) would be to continue employing people -- even better, to employ more people.
The figures in the two tables above are not exact, but they do illustrate my point: that some of America's corporate giants have money available to keep people employed and maybe enough to create new jobs.
One problem: the people making corporate spending decisions seem more interested in funneling shareholder dollars into their own pockets than in helping our nation's severely sick economy.
'So much for "corporate responsibility," "corporate citizenship," and "public-private partnership."
Memeorandum has commentary.
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