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This chapter is from the book

Individualism Run Amok

Americans are justly proud of our individualism. It is a bedrock societal value, and it has contributed to our economic growth and our freedom. But there can be too much of a good thing. Americans are notorious for believing that if a little is good, a lot is better. We often learn lessons the hard way, by tending toward excess. This has happened in the case of our idealization of individualism.

Many profligate executives display a perverted individualism. They are narcissists who have an excessive sense of personal entitlement, demanding egregiously high compensation packages, adorned with every conceivable perquisite. These executives reveal a desire to have it all now believing they are worth it, no matter how outrageous "it" is.

Such corporate leaders have become obsessed with personal wealth building and the financial well being of their family and future generations. Exhibitionism is no longer perceived as the poor taste of the nouveau riche. It is telling the world that you are a great success and worthy of celebrity status. There is little evidence the trend is abating.

A threatening side effect of skyrocketing executive salaries is the pain caused to the tax-supported public sector. A mid-sized city’s Head Start program director paying himself over $800,000 in a three-year period is an example. The tide of rising corporate executive earnings lifted the boats of all types of executives.

Celebrities have deferential subordinates and media attention, which build the sense of entitlement. Entitlement means never having to feel embarrassed by bestowing upon yourself costly New York City pads and GulfStream jets as well as unconscionable monetary rewards. And never having to say you’re sorry because there may be no relationship between the size of your executive bonus and real corporate performance.

Two law professors explode the myth that excessively high executive earnings have something to do with exceptional performance.3 Instead of pay relating to performance, their findings show the weakness or indifference of boards of directors, the subject of Chapter 7, "Directors: Why the Weak Oversight."

Designing lucrative, complex compensation agreements, astute management of option grants, overseeing carefully arranged option execution, and accumulating as much personal wealth as possible, have become major distractions from the business of running a company for some top executives. Energies are siphoned off to exploit "insider trader" advantages. Big option grants and share sales are fine tuned to coordinate with the release to the press of both good and bad corporate news.

A couple of examples suggest the severity of the compensation problem. The CEO of Global Crossing managed to convert options to stock to cash to the tune of three quarters of a billion dollars very shortly before the company imploded. One year, several of Computer Associates’ top executives are alleged to have shared a bonus of a billion dollars based on earnings inflated by cooking the books.

Severance payments are perhaps the most obvious indicator of the heights (or depths) of this new age executive greed. Severance had legitimate origins. Shareholders were concerned that attractive acquisition offers would be ignored by executives wishing to retain their high paying positions. Thus, the promise of a kind of insurance. Lose your job and you get some payout.

Pure greed took over when companies started paying for non-service. Severance often now comes without a change in ownership, just departing. Thirty to 50 million dollars and more is not unusual severance, and the infamous examples are over a hundred million. Often, these payments are made after relatively short service and regardless of whether or not performance was considered good or even acceptable. Michael Ovitz, former president of Disney Co., is a prime example. He received $140 million in severance payouts after only a 14-month tenure. Shareholders brought a lawsuit, which is still not resolved seven years later. Meanwhile, Ovitz has control over the money. There are plenty of examples, such as Carly Fiorina, Hewlett-Packard’s CEO, who was asked to resign rather than being fired, so she collected her multi-million dollar payout.

Almost forgotten are the traditional expectations of executives: after two or three decades of service and reasonable salaries, a good pension to make for a comfortable retirement. It was taken for granted that executives looked to the future. They made sacrifices today for tomorrow’s rewards and the tomorrows were measured in decades.

By way of contrast, a recent report notes that executives who might have earned hundreds of millions during their tenure were also likely to retire with annual pensions of at least a million dollars, and often significantly more.4

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