American free-enterprise capitalist democracy is nothing more than an
'aristocratically high-minded' form of government by primitive pecking
order -anyone that thinks otherwise ought to have his fucking head
examined. As things stand today, we are a nation of ignorants, fuck-offs and
inepts; the major part of youth today (many college students withstanding) is
supported and survives on unsustainable cheap labor -cellphones and ipods in
their fucking heads -dreams of easily 'making it' on American Idol, Sports,
Hollywood or other such happy horseshit made possible by free-enterprise
capitalism ("No education necessary") -lesser countries ignorantly and
unsustainably grinding-out children for future cheap-labor export (a nod
here to guys like Steve Jobs, Zuckerberg [Facebook] and the many, many like
them who keep churning-out ever new and 'improved' models of mind-fuck) -China,
India, Brazil et al busting their asses to catch up to the 'American model' and
make 'bigger and better mistakes' than we do (a nod to Vaclav Havel). Enough of
this shit; do yourselves a favor and read a very informative two-page essay on
the evolutionary nature and future evolution of
democracy; if you have any education at all -and an open mind, you may
actually learn something new.
October 3, 2010 Los Angeles Times
Echoes of Bell in CEO pay
By Michael Hiltzik
As I beheld the sight of Robert Rizzo and his fellow Bell municipal bosses
being frog-marched into court the other day on charges of having overpaid
themselves outrageously at the expense of their suffering constituents, the
following thought came to me:
Why not Ray Irani?
Maybe it's unfair to pick on the longtime chairman and chief
executive of Los Angeles-based Occidental Petroleum, since at $31 million last
year, he places only fourth on Forbes' latest list of America's highest-paid
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If one is looking for overpaid CEOs, as ranked by their
compensation relative to shareholder return, General Electric's Jeffrey Immelt,
Verizon's Ivan Seidenberg and many others might deserve to stand ahead of Irani
in the queue for the orange jumpsuit. (Those rankings come from Forbes
But to some degree they're all emblematic of the No. 1
scandal of American business — executive pay that bears scant relationship to
what these people are worth.
The CEO pay curve has been galloping out of control for so
long that it has achieved the status of a cliche. In 1965 the average U.S. CEO
earned 24 times the pay of the average worker. Four decades later the ratio was
411 to 1..
Efforts to rein in the trend have invariably failed. Boards
were advised to tie the pay of top executives more closely to shareholder
returns; the trend line only steepened. The federal government capped the tax-
deductibility of executive pay that wasn't based on specific performance
standards; companies cooked up performance standards that almost anyone could
Regulators mandated disclosure of these standards; companies
shoveled them into their annual proxy statements in such mind-numbing detail
that few pay attention. The section of Oxy's proxy where the pay formulas for
Irani and his fellow executives are spelled out runs to more than 10,000 words.
How many shareholders would wade through so much verbiage? I know of California
ballot initiatives, which are always designed to obfuscate, that aren't even
half that length.
Evidence shows that CEO pay almost never bears a discernible
relationship to the burden of their jobs or their success. Earlier this year,
veteran compensation consultant Graef Crystal compiled a database of 271 CEOs
for Bloomberg BusinessWeek and judged their pay against a formula based on
their companies' size and stock performance to determine how far their income
diverged from "fair" pay.
By Crystal's reckoning, Irani's 2009 compensation of $31.4
million was about 2 1/2 times what would be fair. He pointed out that Irani's
pay was higher than that of ExxonMobil CEO Rex Tillerson ($27.2 million) "and
Exxon has many times the sales."
That's putting it mildly: Oxy's revenue was $15.4 billion
last year. ExxonMobil's was $310.6 billion. Somebody's pay is out of whack.
This year, Crystal adds, Irani will be due more than $56
million — mostly in cash — thanks to an incentive plan based on the company's
return on equity over the three years ended June 30. How much of an incentive
was the target ROE? It was lower than Oxy's reported return on equity in
You almost never see shareholders in any numbers marching
with protest placards or filling the seats of a public meeting in fury over
executive pay, as Bell's residents have done. And you certainly never see
overpaid CEOs being brought to account in court, whether a court of law (where
Bell's leaders will be facing fraud charges) or the court of public
Yet the similarities between what the Bell leaders are
accused of and what passes for normality in the corporate world are striking.
Setting one's own salary through insider arrangements? Check: The Bell gang
voted themselves steep raises; although most corporate boards make a show of
placing pay decisions in the hands of a committee of "independent" directors,
the members are almost always current or former top executives themselves,
members of a tight club.
That's true of three of the four compensation committee
members at Occidental Petroleum, four of the six at GE, all six at Verizon and
all three at Cephalon Inc., whose CEO, Frank Baldino, Crystal identifies as the
most overpaid chief executive in his database. (Baldino's $11.1 million pay
last year is 832% of what would be fair, Crystal calculated.)
What about special retirement deals? Check: Rizzo designed a
supplemental pension plan for himself and 40 other city officials, providing
them with far more than the standard for California municipal employees.
"Supplemental executive retirement plans," or SERPs, which
are designed to circumvent federal rules outlawing pension formulas that
discriminate between low-paid and high-paid employees, are common in the
corporate suite. Of Crystal's sample of 271 CEOs, 189 participated last year in
SERPs, which "create a class of senior executives akin to British royalty," he
The dismal reality of CEO pay is that it comprises two
problems, not one. Top executive pay generally is too lavish in the U.S. no
matter what performance standard you apply. Good performance or bad, the pay
disparity between the CEO and the rank and file is larger than in any other
country, contributing to rising income inequality and to its consequent social
It's also based on several flawed assumptions, argue Jay
Lorsch and Rakesh Khurana of Harvard Business School in a recent article for
Harvard Magazine. One is that money is the only motivating factor behind
Another is that shareholders are the only stakeholders in
corporate performance whose interests matter. This is a relatively recent
paradigm, they observe; as late as 1990 business groups recognized the
importance of a corporation's responsibility to stakeholders such as employees,
customers, suppliers and the community.
The flaw in the latter assumption is that it ties CEO pay to
stock prices, which they can't influence on their own. But the picture of the
CEO as virtually the sole auteur of a corporation's fate permeates American
society. Listen to a Meg Whitman campaign ad talking about "the EBay Meg
created." If you pay attention you may catch a reference to the 15,000
employees who were there when she left, at least a few of whom must have had
something to do with the company's success.
Plenty of American CEOs are deeply underpaid by Crystal's
reckoning. Typically they're founders or owners or their close associates, who
find compensation and fulfillment elsewhere than in salary or bonuses. (In
recent years this group also has included the heads of firms accepting
government bailouts, such as Citigroup and Goldman Sachs.)
Google's Eric Schmidt takes $1 a year, plus about $245,000
mostly for "personal security." But he also owns Google stock that could be
liquidated for about $5 billion. Amazon.com's founder and CEO, Jeff Bezos,
pulls down $81,840 in salary, but what the hey, his stock is worth $14
It's the hired guns who are more likely to be overpaid,
because their pay-for-performance arguments resonate with their pals on
compensation committees. Harvard's Lorsch says that won't change until we start
talking about "what kind of society we want to have" and where the corporation
But an attention-grabbing opportunity like the disclosures
that put Bell on everybody's radar screens doesn't seem to be on the horizon in
the private sector. Without it, none of the stakeholders in corporate
performance will be able to bring executive pay back to earth. "I'm taken with
the argument that pay should come down," Lorsch says, "but how do you get the
genie back in the bottle?"
Michael Hiltzik's column appears Sundays and Wednesdays.
Reach him at email@example.com, read past columns at latimes.com/hiltzik,
check out facebook.com/hiltzik, and follow @latimeshiltzik on Twitter.