Save Jobs by Cutting Executive Pay

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.

Table 1.  Partial 2007 Compensation for CEOs
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Company	CEO	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).

Table 2.  Number of Jobs Saved by Cutting CEO Pay to $2.5 Million
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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.

Last month, Merrill Lynch found itself in such turmoil that it ended up being bought by Bank of America.  In 2007, the year leading up to the crumbling, Merill's CEO John Thain was paid $83 million.

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.

Other Buck Naked Politics Posts:

* Are Bailout Funds Being Misused?

* Lehman Execs Redistribute Shareholder Wealth (to Themselves)

* AIG Execs Redistribute Shareholder Wealth (to Themselves)

* Execs Made Millions While Driving Companies into Ditch

* The Economy Continues to Stall

* Bush Puts Executive Branch Above the Law Yet Again

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Comments

[Manchester2]

I can hardly remember an election when I've waited so long to decide on my choice for President. One week from today, I'll cast my vote for Sen. McCain, and here's why:

1. MCCAIN SEEKS TO LIMIT ABORTION - Sen. Obama's position may be called the "audacity of hopelessness." He is out of step with his own running mate, Joe Biden, who in 2003 with 63 other senators voted to ban the practice of partial birth abortion. Under a President Obama, a Federal Freedom of Choice Act would increase the number of abortions performed annually, defying the "safe, legal, and rare" rhetoric that is often heard by abortion's proponents. On the other hand, Sen. McCain has consistently voted to protect the unborn, the right to life prerequisite to all other rights that we enjoy in this country.

2. MCCAIN FAVORS CUTS IN MILITARY SPENDING - He has been very clear that we don't need new weapons systems that cost billions, and would cut them from the bloated Pentagon defense budget. That money can be used elsewhere, perhaps to expand peaceful programs that are working, such as PEPFAR, the U.S. initiative against the spread of AIDS in Africa.

3. MCCAIN IS CORRECT ON IMMIGRATION AND GLOBAL WARMING. He seeks a path to citizenship for those who are living in the U.S. illegally, and wants to tighten border control. Also, he acknowledges the need for "Creation Care," that we must take care of this earth, as God's stewards, and this includes keeping the thermostat in-check.

4. MCCAIN WOULD MAKE THE GOVERNMENT LIVE WITHIN ITS MEANS. There is a huge disconnect between the average American who must carefully budget and Washington, that spends like there's no tomorrow. We need a Dave Ramsey approach to federal spending! McCain has the record to show he'd stand-up to wasteful spending.

On these four issues, Sen. McCain is dead-on. Together, they tip my vote in his direction.

[Charles]

Interesting. McCain would make government live within his means except that he's voted for the biggest expansion of government since FDR. McCain is the ideal candidate of low information voters who don't mind large amounts of hypocrisy or the risk of a completely incompetent vice president suddenly becoming a completely incompetent president.

DC: I haven't seen any news about Barbara West on BNP. Surely her eruption at Biden didn't play well even in Florida?

[Deb Cupples (Buck Naked Politics)]

Hi Charles,

I took multiple days off blogging due to death of family friend. Coming back to it, I can't help but be more interested in our economy and related issues than on campaign theater.

Because YOU suggested it, however, I'll go look into the West-Biden thing.

[Damozel]

Charles: Our sister blog has it covered; I just forgot to link to it. See:

http://bucknakedpolitics.typepad.com/buck_naked_politics/2008/10/alive-and-snark.html

[ep3]

I ask this:
How many doctors make $16 million in a year? I would consider someone who is performing heart surgery on me MUCH more valuable and worth such 8 figure salaries as those received by these CEOs.