If you own shares in public companies–and if you have a 401(k) plan, you probably do–you’re already paying a small fortune to a bunch greedy CEOs who think they need to be “incentivized” with tens of millions of your retirement dollars just to do their jobs. Top officers at public companies pocket about 9% of company profits, according to a Harvard study.
To be sure, everyone deserves to be paid for their work. But, CEO pay has rocketed so high that the typical chief executive earns more than 300 of his employees combined. He’s worth it, you say? Okay, then have him man the switchboard, open the doors, work the assembly line and wait on customers for those 300 people who can’t be hired.
But for one bright shining moment, it looked like a combination of public furor and legislative action was going to put the clamps on the most egregious practices. CEO pay, the studies said, finally dropped a bit in 2008. Experts were predicting that pay would drop far more when 2009 figures came out, to reflect the bad news that shareholders have been dealing with since late 2008.
So much for that.
A new study released Tuesday gives a glimpse of what’s coming and its not a pretty sight for shareholders. A dozen companies, ranging from credit card issuer Capital One Financial Corp. to Seagate Technology, issued “mega grants” of stock options to their top officers as stock prices plunged. Those actions virtually guarantee that these executives will reap multi-million-dollar windfalls for doing nothing more clever than settling into their cushioned leather chairs as the stock market recovers.
Those companies are just the tip of the iceberg, said Paul Hodgson, senior research associate at The Corporate Library, who conducted the study. More than a dozen additional companies have issued similar mega grants since the research on the first group was launched.
“If you grant large numbers of shares at historic low share prices, all that’s needed is a slight jog in the market and those shares are going to be worth a fortune with no effort from management at all,” said Hodgson. “It has nothing to do with creating value for shareholders.”
Indeed, in the few months since these grants were awarded, several of these executives have already posted huge paper profits, according to the report. The 3.5 million shares granted to Seagates’s Stephen J. Luczo in December, for example, is already worth some $8.2 million. At SunTrust Bank, which has taken $3.5 billion (yes, that’s Billion, with a B) in taxpayer dollars in the bank bailout, CEO James Wells got an option grant of 1.1 million shares, already worth about $4 million. Wells’ compensation was up in 2008–despite the company’s miserable performance, too.
Companies argue that stock options are a good way to reward for long-term performance because they’ll only be worth money if the stock’s price appreciates. But, when you give a mega-grant in the middle of a stock market rout, you virtually guarantee profits for no performance. In fact, mega-grants represent some of the worst “pay-for-failure” practices, said Hodgson.
What are these companies really hoping for long term? That shareholders forget when those options were granted before their executives make a killing. That way, when these CEOs walk away with an outrageous amount of your hard-earned money, they’ll be able to claim it was “pay for performance”–even when the claim is a lie.
