America's caste system - a reflection on executive compensation

When I drive back to Washington, from my home in the country, I pass the barricaded parking areas and shuttered buildings of what were once State of Virginia rest stops for travelers on Route 66. Both of these facilities were closed to help meet deficits in the State budget. For some reason, passing by these facilities, which made ordinary traveler’s lives more pleasant in small ways always brings the topic of executive compensation to mind.

For me a poster child of obscene levels of executive compensation is former General Motors Chief Executive Rick Wagoner. This evening, I researched how Mr. Wagoner is doing on the internet. A Fox news posting (Fox News is not unsympathetic to the business community and free enterprise) noted Mr. Wagoner’s accomplishments in an article headlined “Former GM CEO Rick Wagoner Gets $10M Retirement Package." It noted that when Wagoner became CEO, GM shares were valued at $92. Recently, with GM in Bankruptcy, trading in GM shares was suspended with the value at $1.15 per share. According to Fox, GM has issued statements that its stock has, essentially no value. It noted that during the past four years, ‘GM racked up $40 billion in losses.’

Fox News sympathized with Mr. Wagoner’s plight. It noted that during his 32 years with the company he earned only $62.3 million $38.7 million for his services as Chief Executive, leading GM into bankruptcy. It noted that in contrast to the $400 million received by the Chairman of Exxon Mobil, the $161.5 million earned by the Chairman of Merill Lynch, culminating a disastrous tenure, and the $140 million awarded to Michael Ovitz after a brief tour as Disney President, Wagonner’s compensation was modest indeed and, according to an ‘executive compensation specialist,’ not at all out of line. The fact that this occurred when GM slashed previously guaranteed benefits for most of its retirees was not viewed as a problem.

For those, such as myself, who have spent many years researching in South Asia, especially India and Sri Lanka, the explanation is simple. Compensation in ‘free market’ America as become part of a caste system. Corporate Executives such as Wagoner, Stan O’Neil of Merill Lynch, Disney’s Ovitz and many others simply view themselves as a different species of human beings, governed by different rules and guided by different moral precepts and entitlements. The are the Brahmins, those they employ are low caste or untouchable. Their 'needs' are described using an entirely different discourse.

Except when I drive past shuttered rest stops on route 66 I think little about this immoral system and the ill-gotten financial gains it has produced for a privileged upper caste few. But I do wonder how they are spending the munificence that deprived-stockholders, employees or, in some cases, the US taxpayers have unwillingly (or unwittingly) bestowed on them. Are they spending it on expensive vacations and $10,000 watches, first class travel, and $100 plus bottles of wine for dinner. Or have they, perhaps, established scholarship funds for the children of fired employees or contributed to the creation of social businesses such as Nobel Laureate Mohammed Yunis described his recent book, A World Without Poverty.

If they are looking for a worthy target for some surplus cash, perhaps they could consider creating a special fund to open the closed rest stops on Route 66, for the benefit of the less privileged lower caste Americans - teachers, truck drivers, commuters and ordinary tourists - who miss them.

Just compensation?

Though a new year is beginning, I find that I cannot leave the old behind without venting briefly about two 2007 stories that I found particularly repugnant. My concern is the compensation packages recently awarded to “retiring” (read fired) Citibank Chief Executive Charles Price and Merrill Lynch Chief Executive Stanley O’Neil.

Stripping the verbiage from numerous stories in the business press, we learn that both men played key roles in implementing practices that have contributed to the current sub-prime mortgage debacle. This debacle is threatening the health of America’s economy and, perhaps even the global economy. Thousands of homeowners, by no means all of whom hold sub-prime mortgages have been stricken by spill-over consequences of actions by these financial leaders and others like them.

At least the firms they lead, too, are paying a price for entrusting positions of leadership to Price and O’Neil. Citibank, it is reported, will be writing down losses of $8 to $11 billion from subprime lending. Merrill Lynch losses are reported at $7.9 billion. Stockholders of the two companies are suffering additional losses.

But what about personal responsibility? It is reported that Price will receive compensation of about $27 million, plus $100 million in additional benefits from stock options. O'Neil's total package is reported to be $160 million.

I simply don’t get it. How can these men look themselves in the mirror each morning? How do they explain the morality of these circumstances to their children and grandchildren? Questions like this do not only originate with me. They also come from the students with whom I live at American University;.

It seems to me that the least Mr. Price and Mr. O’Neill could do is offer a heartfelt public apology to their former employees, stockholders and the American people. They could adopt a modest lifestyle, perhaps that of a police officer, military officer, social worker or junior high school teacher of a comparable age. They could donate the remainder of their ill gotten gains to some worthy cause.

That would be just compensation, it seems to me.