by Deb Cupples | The New York Post tells us that the people running Citigroup are planning to spend 50 million shareholder-dollars on a luxury jet (Dassault Falcon 7x) that seats 12. Yes, that's the same Citigroup that has received about 50 billion tax dollars under TARP.
As a taxpayer and a Citigroup shareholder (albeit a small one), I'm not pleased.
If the average cost of a non-managerial job at Citigroup is $100,000 per year, then simply by doing without the new luxury jet, the people running Citigroup could conceivably use that money to save or create 50 jobs for 10 years, 100 jobs for five years, or 250 jobs for two years.
Not only would job preservation or creation benefit numerous American families, but also it would benefit Citigroup's shareholders (assuming the people whose jobs were saved or created are productive).
Note that the purchase price of a luxury jet is just the beginning: such winged and gilded chariots come with recurring costs for maintenance, storage, and operation. In 2007, for example, Citi's then-CEO Charles Prince's trips on corporate jets cost Citi's shareholders $170,972. Unfortunately, Mr. Prince was not the only exec using Citi's jets.
Incidentally, Citigroup already owns at least two older luxury jets, valued at about $27 million apiece, which are reportedly up for sale. If Citi's execs would skip buying the new jet and sell the old jets for a total of $50 million, then the company could use the money to save or create 100 jobs for 10 years, 200 jobs for five years, or 500 jobs for two years.
Yes, that does sound like a drop in the bucket, given that back in November Citigroup planned to cut 50,000 jobs starting in 2009. (CNN)
But in this economy, every 50 or 100 or 500 jobs count.
Luxury jets are not the only perquisites (perks) that Citigroup execs and Board members could give up in order to save or create jobs.
In 2006, for example, Citigroup's Board spent $21.5 million paying taxes for then-CEO Sandy Weill. It's a great perk if you can get it. The Board also paid $85,714 for Mr. Weill's personal financial-planning advisor(s).
I don't know what other sorts of perks (beyond huge bonuses and stock grants) that Citgroup gives its execs. Some big companies have bought or leased very expensive condos and cars for execs to use.
Before Enron fell in 2001, its executives had budgeted $20 million to building a corporate art collection -- and gave then-CFO Andy Fastow's wife Lea access to the corporate jet to fly around the world buying art.
Incidentally, Mr. and Mrs. Fastow were sentenced to prison; the court allowed the couple to coordinate their sentences so that one parent would be at home with the children at all times. (The art collection is not why the Fastows ended up having to coordinate prison terms; it's just a good example of corporate perks).
But I digress.
The upshot: every dollar that pays for an executive perk is one less dollar for the company to spend on saving or creating jobs. And the costs of perks can be massive, when you multiply them out by numerous executives and managers over multiple years.
Note that Citigroup is just one of a number of public companies that questionably spend (i.e., waste) shareholder dollars on non-essentials that execs personally enjoy but that don't do much to increase the actual value of the company.
Yves at Naked Capitalism comments:
"Even if there were a rationale for Citi buying a corporate jet now (which I cannot fathom, given their horrid financial conditon), why buy new? There are no doubt plenty of used jets for sale right now."
I hadn't thought of that: good point. Matthew Yglesias points out:
"As an example of the difference between nationalizing a bank as part of a rescue package and simply getting its toxic assets 'off the balance sheet,' in a nationalization scheme the taxpayers whose money is paying for the jet would also own the jet and be in a position to sell it off. Under a Classic TARP plan you pay for the jet, but Citigroup’s shareholders own the jet, and Citigroup’s managers get to use the jet."
It's not just the so-called lefties that are offended by Citigroup's jet-related plans. Right-wing blogger Allahpundit at Hot Air comments:
"No wonder they have no cash to lend; their capital’s all wrapped up in important expenses like this. Serious question: Do these turds want to survive, at least as private entities? Public support for the Big Three cratered when they were caught taking private jets down to D.C. for their first congressional hearing. They got their money anyway, of course, but letting companies like GM and Citi fail isn’t the only 'punitive' option for an angry electorate anymore. After reading the Post piece on the jet, this passage from the Times story on nationalization tempted even my withered libertarian heart."
I'm glad to see that ordinary folks from the "right" and "left" are seeing eye to eye on the issue of corporate waste (or looting).
Memeorandum has commentary.
Other Buck Naked Politics Posts:
* Save Jobs by Cutting Executive Pay
* Krugman Refutes Arguments for Bush-Style Corporate Tax Cuts
* Real Bonuses Based on Fake Profits
* Execs Made Millions While Driving Companies into Ditch
* Bank of America CEO Surprised by Merrill's Massive Losses?
* Cleaning up Political & Corporate Culture Could Help Economy
Who wants to join me in a class action lawsuit against Citi and the Government for incompetence? Bailouts for corportate jets is not where my tax dollars are supposed to be going.
Posted by: marc | January 27, 2009 at 09:43 AM
This is terrible. Why does the government give money to a company, without restrictions on how that money is to be used and require all companies that receive the money to dissolve all perks and unncessary purchases for the Executives? The government should also require all art as mentioned above planes, and any other luxuries to be sold. Without their employees, the Exuectives wouldn't have a job because they can't run a large company by themselves. If you are an Executive, you should care about doing what is right and ethical for your employees. The CEO's should do what is ethical and morally right and that is to get rid of all perks for themselves.
Posted by: Terri Podschweit | January 27, 2009 at 01:59 PM
Terri,
We certainly are of similar minds on this one.
Marc,
You make a good point.
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