Faculty

Published on October 27, 2008 | by LawNews

Prof. Daniel Greenwood on The Huffington Post

Professor Daniel JH Greenwood wrote an article for The Huffington Post on the subject of overpaid CEOs.

Last year, four hedge fund managers took home over $1 billion each in pay.

Seeming pikers by comparison, CEOs of Fortune 500 companies received an average over $14 million, according to the AFL-CIO’s Executive PayWatch. But some did quite a bit better. For example, former Bear Sterns CEO James Cayne received about $40 million in pay last year. Then, in the bailout, he sold his stock — pay from earlier years — for another $61 million, for total receipts of $100 million while running his company into the ground.

That’s about $7000 per hour for the CEOs and $8.5 million per hour for the highest paid of the hedge fund managers.

No one “makes” that much money. These guys aren’t producing wealth. They are taking it.

Over the last couple of decades, we have taught the leaders of our most important institutions — the great corporations that manage our economy — that they are in business for themselves. That they are free to do whatever will makes them richest, without regard for the public.

We have a word for the idea: Corruption. Corruption isn’t just bribing government officials or using company money to pay for private parties or $7000 shower curtains — although we’ve seen plenty of that. Corruption means using the privileges of office for private gain. And the “free-market” ideologues of the last few decades have taught our CEO office holders to be corrupt without shame.

Business executives, just like governmental officials, hold offices of enormous public importance. When they feel entitled to use them for purely private self-enrichment, the rest of us suffer. The money that CEOs and other top executive have been paying themselves is money that could have been invested in their companies. Median American pay is about what it was a full generation ago. The economy has grown, productivity has increased, but families with incomes below the top 10% have seen almost no benefit.

Middle class families have tried hard to make do. First, they tried working harder, supplementing the Family Breadwinner, whose income was no longer enough, with the Working Mom. Then, they began borrowing. Now, we are in a crisis of over-borrowing, but even after that crisis is resolved, we will have the larger problem: all the economic growth of the last generation has gone to the relatively well off, and most of it has gone to the extremely rich-the top tenth of a percent.

To reclaim our country, the first thing we need to do is to re-establish the notion of public service. Corporate executives need to understand that their job is to work for the good of the country — not just themselves, and certainly not just for their shareholders (they now own a good part of those shares), but the company and its employees, its customers, and the nation as a whole.

Managers who take unreasonable pay, regardless of whether it is cash or stock or options, should be seen for what they are: raiders, who, much like the old aristocracy we thought we had defeated at the end of the middle ages, simply use their power to take more than their share. Neither boards nor shareholders will stop them: they are too easily bought with the spoils of stealing from future investment and current employees. Condemnation might. If that doesn’t work, we may need to consider returning to the taxation of the Eisenhower years, taking the ill-gotten gains of the powerful and using them to rebuild the middle class.

In the meantime, however, watch carefully, and you will see vast parts of the bailout — meant to rescue the financial underpinnings of our economy — sucked into the open maws of the same folks who mismanaged us into our current problem.

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