Executive Pay
After years of watching the top echelons of corporate management take home billions, shareholders want to know: Will inflated pay packages get slashed?
By David S. Hilzenrath
Washington Post Staff Writer
Sunday, December 21, 2008
Angelo R. Mozilo, whose Countrywide Financial came to symbolize the failings of the mortgage industry, took home more than half a billion dollars from 1998 to 2007, including $121.7 million from cashing in options last year alone. Charles O. Prince, who led Citigroup to the brink of disaster, was awarded a retirement deal worth $28 million. Now, in a show of purported restraint, top Wall Street executives are going without bonuses.
What are we to make of all this?
If you're angry that so many executives got paid so much for screwing up so spectacularly, you might take solace in the fact that shares they still hold have lost value, too. But if you think executive pay is finally succumbing to the force of gravity -- if you'd like to believe that an epic destruction of investor wealth will fundamentally and permanently change the way chief executives are paid, or that you, dear shareholder, have the power to join forces with others just like you and create a more rational order -- don't bet on it. The nation's financial crisis could change the rules of executive pay, but if history is any guide, you'll have a lot more to complain about in the years ahead.
Through nearly two decades of tinkering, each new twist in executive pay has proved flawed. Incentives meant to reward good management have done just the opposite, and efforts to reform the system have in some respects made matters worse. From the bursting of the dot-com bubble to the collapse of companies like Enron and WorldCom, from the rampant backdating of stock options to the current meltdown of the global financial system, the so-called pay-for-performance movement has led to colossal windfalls, reckless risk-taking and fraud.
(More here.)
By David S. Hilzenrath
Washington Post Staff Writer
Sunday, December 21, 2008
Angelo R. Mozilo, whose Countrywide Financial came to symbolize the failings of the mortgage industry, took home more than half a billion dollars from 1998 to 2007, including $121.7 million from cashing in options last year alone. Charles O. Prince, who led Citigroup to the brink of disaster, was awarded a retirement deal worth $28 million. Now, in a show of purported restraint, top Wall Street executives are going without bonuses.
What are we to make of all this?
If you're angry that so many executives got paid so much for screwing up so spectacularly, you might take solace in the fact that shares they still hold have lost value, too. But if you think executive pay is finally succumbing to the force of gravity -- if you'd like to believe that an epic destruction of investor wealth will fundamentally and permanently change the way chief executives are paid, or that you, dear shareholder, have the power to join forces with others just like you and create a more rational order -- don't bet on it. The nation's financial crisis could change the rules of executive pay, but if history is any guide, you'll have a lot more to complain about in the years ahead.
Through nearly two decades of tinkering, each new twist in executive pay has proved flawed. Incentives meant to reward good management have done just the opposite, and efforts to reform the system have in some respects made matters worse. From the bursting of the dot-com bubble to the collapse of companies like Enron and WorldCom, from the rampant backdating of stock options to the current meltdown of the global financial system, the so-called pay-for-performance movement has led to colossal windfalls, reckless risk-taking and fraud.
(More here.)
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