Economy & Trade, Financial Crisis, Headlines, Labour, North America

ECONOMY-US: Still as Good as Ever to Be the Boss

Stephen Morris

WASHINGTON, Sep 2 2009 (IPS) - Only 12 months after the meltdown of the U.S. financial system and the ensuing taxpayer-sponsored government bailout, the pay of the nation’s top Wall Street chief executive officers (CEOs) is beginning to bounce back to pre-crisis levels, according to a new study on executive compensation released Wednesday.

In addition, the pay gap between the typical CEO and the average U.S. worker remains almost as high as ever, with a disparity of 319-to-1.

“America’s executive pay bubble remains un-popped,” said Sarah Anderson of the Institute for Policy Studies (IPS), the lead author of the study. “And these outrageous rewards give executives an incentive to behave outrageously, putting the rest of us at risk.”

The report, titled “America’s Bailout Barons” and released by IPS, focuses on the compensation received by the 100 top executives at 20 of the top financial institutions propped up by the federal government to help stave off the worst effects of a recession.

Together they have absorbed approximately 283 billion dollars of federal bailout funds as part of the Troubled Asset Relief Programme (TARP).

The CEOs of these firms have pocketed an average of 13.8 million dollars in personal compensation – 37 percent greater than the overall remuneration of CEOs on the S&P 500 index, who averaged 10.1 million dollars. Overall, in the three years through 2008, pay packages worth a combined 3.2 billion dollars were given to the nation’s top 100 financial executives who averaged 32 million dollars each.

The IPS report estimates that 100 average working U.S. citizens earning 18.08 dollars an hour – 31,589 dollars a year – would have to toil for 1,000 years to equal the multi-billion-dollar earnings of these executives.

The report, released to coincide with Labour Day on Sep. 7, comes amidst news that U.S. unemployment reached 9.4 percent this July and growing public disillusion over the conduct of banks bailed out by the government who have adopted a “business as usual” approach, despite the billions of taxpayer dollars awarded to prop up the ailing industry.

The pay gap ratio of 319-to-1 does represent a decrease in the gap between a CEO and the average U.S. worker since the banking crisis. However, the overall decline in CEO compensation since 2007, when the ratio was 344-to-1, was 4.4 percent – a negligible figure, IPS concludes, when the decline in corporate profits of 10.1 percent is taken into account.

Furthermore, the scale of the problem is revealed when compared to previous decades: in 1990 CEOs earned 107 times that of the average U.S. worker, and in 1980 only 40 times, according to a previous IPS report in 2007.

One of the key problems the report identifies is the vast public-private sector pay divide, which IPS argues “siphons off talent from public service” and creates an ever-present conflict of interest between federal regulators and their potential future public sector employers.

Those 20 top CEOs whose companies received aid from TARP collected paycheques that dwarfed those who head up the top federal financial regulatory agencies.

Their 13.8 million dollars in earnings are 70 times greater than the 196,700-dollar salary of Treasury Secretary Timothy Geithner and Fed Chair Ben Bernanke, and 85 times greater than the heads of the SEC and FDIC.

The detrimental impact of pay disparities is not limited to CEOs and high ranking administration officials.

The U.S. Government Accountability Office (GAO) warned in 2001 that pay gaps inhibited effective government oversight of the financial industry, as few entry level staffers can resist the lure of substantially higher private sector payoffs for long.

For example, the starting salaries of compliance officers at the FDIC and the SEC are routinely less than 60,000 dollars, whereas an average Wall Street employee can expect to take home nearly twice that figure in bonuses alone.

The litany of bailed out financial firms’ improprieties do not end there. The top 20 recipients of bailout aid have lain off more than 160,000 employees since the beginning of 2008. Citigroup suffered the most, eliminating 75,000 jobs since January 2008.

As a gesture of solidarity, CEO Vikram Pandit has reduced his salary to a nominal one dollar until the firm returns to profitability. However, this gesture is relatively inconsequential considering Pandit netted over 38 million dollars in compensation in 2008 alone.

The nascent recovery of the economy is one of the reasons for the seemingly counterintuitive increase in bailout executives’ pay.

Early in 2009 firms rewarded their executives with new stock options when share prices were at their nadir. As the economy improved with federal TARP backing, these awards have increased in value – resulting in lucrative payoffs for the upper echelons of Wall Street.

From the published results of 10 of the top 20 firms that received bailout funds, IPS estimates the top five executives at these institutions saw an increase in their stock options of almost 90 million dollars.

Leading the field is American Express CEO Kenneth Chenault, who has seen his stock options magnify in value by 90 percent since January – a profit of 17.9 million dollars.

The report also criticises the Barack Obama administration’s lack of resolute action on the issue. Despite strident populist rhetoric over the course of the election campaign and during their first 100 days in office, the report’s authors claim that early efforts to curtail the exponential rise in Wall Street salaries – the so-called “CEO pay bubble” – have stalled.

In a speech this February, the U.S. president reiterated his commitment to restoring public trust in the financial system, the keystone of which was “mak[ing] certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”

However, IPS says restrictions imposed on executive pay have been largely ineffective as they did not challenge the fundamental operating procedures of the corporate world.

Recently, bank holding company Goldman Sachs posted the richest quarterly profit in its 140-year history – 3.44 billion dollars – and announced that it had earmarked 11.4 billion dollars so far this year to compensate its workers.

The bank had only recently paid back the 10 billion dollars it received in federal aid early to avoid incurring federal limits on their top executives’ compensation packages.

A rash of reform legislation has been introduced in Congress, overwhelmingly from the Democratic side, but has proceeded fitfully and with little enduring impact.

Symptomatic of such efforts was Rep. Jan Schakowsky’s failed “Patriot Corporations Act”, which attempted to restrict tax breaks and federal contracting preferences to institutions that meet standards for good corporate behaviour – the centrepiece of which was not compensating any executive more than 100 times the income of the lowest paid worker.

IPS Director John Cavanagh and senior scholar Chuck Collins believe the onus lies with publicly elected officials to address the fundamental questions of the executive pay gap.

“Public officials in Congress and the White House hold the pin that could pop the executive pay bubble,” said Collins. “They have so far failed to use it.”