Companies Keep Enriching CEOs

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

Jeff Immelt, CEO of General Electric since 2001, is retiring. The 61-year-old will be making a well-compensated exit.

Fortune magazine estimates that Immelt will walk off with nearly $211 million, on top of his regular annual pay. Immelt’s annual pay hasn’t been too shabby either. He pulled down $21.3 million last year, after $37.25 million in 2014.

But Immelt’s millions don’t come close to matching the haul that his predecessor Jack Welch collected. Welch’s annual compensation topped $144 million in 2000. He stepped down the next year with a retirement package valued at $417 million.

What did Immelt and Welch actually do to merit their super-sized rewards? What did they add to a GE hall of fame that already included breakthroughs like the first high- altitude jet engine (1949) and the first laser lights (1962)?

In simple truth, not much at all.

“We bring good things to life,” the GE ad slogan used to proudly pronounce. Not lately.

And not surprisingly either. Mature business enterprises, we’ve learned over recent decades, either make breakthroughs for consumers or grand fortunes for their top execs. They don’t do both.

Why not? Making breakthroughs, for starters, takes time. Enterprises have to invest in research, training, and nurturing high-performance teams.

Years can go by before any of these investments bear fruit. By that time, the executives who made the original investments might not even be around.

Grand fortunes, by contrast, can come quick. CEOs can downsize here, cut a merger there, then sit back and watch short-term quarterly earnings – and the value of their stock options – soar.

If those don’t do the trick, CEOs can always just slash worker pensions or R&D and put the resulting “savings” into dividends and “buybacks,” two slick corporate maneuvers that jack up company share prices and inflate executive paychecks.

Slickness scale

On any CEO slickness scale, Jack Welch would have to rank right near the top. In 1981, his first year as the GE chief, Welch quickly realized he was never going to get fabulously rich making toasters and irons.

So Welch started selling off GE’s manufacturing assets. In his first two years, analyst Jeff Madrick notes, Welch “gutted or sold” businesses that employed 20 percent of GE’s workforce.

By 2000, Welch was making about 3,500 times the income of a typical American family.

By contrast, in 1975, Welch’s predecessor took home merely 36 times that year’s typical American family.

As Welch’s successor, Jeffrey Immelt would give an apology of sorts in a 2009 address at West Point. Corporate America, he told the corps of cadets, had wrongfully “tilted toward the quicker profits of financial services” at the expense of manufacturing and R&D, leaving America’s poorest 25 percent “poorer than they were 25 years ago.”

“Rewards became perverted,” Immelt went on. “The richest people made the most mistakes with the least accountability.”

Unfortunately, and sadly, Immelt never took his own analysis to heart. As a rich CEO in his own right, he continued to make mistakes and suffer no particular consequences.

One example: After the Great Recession, Immelt froze the GE worker pension system and offered workers a riskier, less generous 401(k). Within five years, notes the Institute for Policy Studies, the GE pension deficit widened from $18 billion to $23 billion – even as Immelt’s personal GE retirement assets were nearly doubling to $92 million.

“If we want to slow – or better yet, reverse – accelerating income inequality,” the Harvard business historian Nancy Koehn noted a few years ago, “the most powerful lever we have to pull is that of outrageous executive compensation.”

How many more outrageously compensated executives will retire off into lush sunsets, the Jeff Immelt story virtually begs us to ask, before we start yanking that lever?

***

Reposted from Vandy.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality. He is an associate fellow at the Institute for Policy Studies in Washington, D.C. Last year, he played an active role on the team that generated The Nation magazine special issue on extreme inequality. That issue recently won the 2009 Hillman Prize for magazine journalism. Pizzigati’s latest book, Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives (Apex Press, 2004), won an “outstanding title” of the year ranking from the American Library Association’s Choice book review journal.

Posted In: Allied Approaches

Union Matters

An Invitation to Sunny Miami. What Could Be Bad?

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

If a billionaire “invites” you somewhere, you’d better go. Or be prepared to suffer the consequences. This past May, hedge fund kingpin Carl Icahn announced in a letter to his New York-based staff of about 50 that he would be moving his business operations to Florida. But the 83-year-old Icahn assured his staffers they had no reason to worry: “My employees have always been very important to the company, so I’d like to invite you all to join me in Miami.” Those who go south, his letter added, would get a $50,000 relocation benefit “once you have established your permanent residence in Florida.” Those who stay put, the letter continued, can file for state unemployment benefits, a $450 weekly maximum that “you can receive for a total of 26 weeks.” What about severance from Icahn Enterprises? The New York Post reported last week that the two dozen employees who have chosen not to uproot their families and follow Icahn to Florida “will be let go without any severance” when the billionaire shutters his New York offices this coming March. Bloomberg currently puts Carl Icahn’s net worth at $20.5 billion.

***

More ...

Health Care Should Not Be A Bargaining Weapon

Health Care Should Not Be A Bargaining Weapon