Few will dispute that senior executives at banks and corporates deserve to be well paid for their work – assuming that they perform well. But far too many are heaping excess upon excess. We’ve seen more than enough examples in recent years: The largesse of former GE CEO Jack Welch; the penchant of former Tyco CEO Dennis Kozlowski for exceptionally expensive shower curtains and umbrella stands, among other examples; the staggering pay package for former New York Stock Exchange CEO Richard Grasso.
Despite such scandals, nothing has changed. Morgan Stanley is spending hundreds of millions of dollars compensating executives who are departing for the simple reason, regardless of how much they try to blame a media frenzy, that staff and investors thought ill of their track record. Departing CEO Phillip Purcell is getting more than $100 million, and the bank will even give $250,000 a year to charity for him. His sidekick, Stephen Crawford, was guaranteed $32 million, two years’ pay, if he chose to leave by early August. Unsurprisingly, he did.
Compounding the ludicrousness of the affair, Morgan Stanley lead board director Miles Marsh countered that the guarantee was justified. His argument was that Crawford, who has long since been earning at least a seven-figure salary, might not be able to get a new job for a while if he were not part of the new management team under incoming CEO John Mack. How many cooks, cleaners, secretaries or even bog-standard traders get treated so magnanimously? Unless he’s been severely mismanaging his money, the one thing Crawford does not face, even without the two-year payoff, is dire financial straits.
Morgan Stanley is not alone, not by a long way. Anyone spending a couple of hours trawling through proxy statements to the SEC will find far too many examples of egregious pay and bonus schemes. One such is at Merrill Lynch, where members of the executive and senior management will receive a staggering payout if they lose their jobs in the event of a change of control such as a merger or takeover, which as executives it is part of their fiduciary duty to consider and enter into. Each will receive 2.99 times the average annual salary, bonus and grant stock value of their previous five years’ remuneration, as well as two years’ insurance benefits, pension contributions and any taxes these incur. In other words, they will get a three-year payoff, plus two years’ benefits, simply for doing their job, for which they were already exceptionally well paid.
The latest example, as Euromoney went to press, was Sandy Weill, architect and former CEO of Citigroup, who according to reports wants to resign as chairman nine months early to set up a private-equity fund. But, despite going to a new job, Weill is insisting on retaining access to the Citigroup private jet, Citigroup-provided security and a Citigroup office, among other things. Citigroup, he demands, should pay for these. Weill, according to Forbes, is worth $1.5 billion and is the world’s 437th richest person.
Executives are paid well to do a good job. They should not be rewarded for failure, nor should they receive severance or retirement packages that make a mockery of those received by the overwhelming majority of employees. The seven-, eight- and nine-figure salaries executives are paid are already a reflection of the responsibility and risk they hold in their hands, and more than amply provide for the rest of their lives. It is nothing short of arrogance to demand an entitlement to more.
