Blind greed

The New York Times reports that Citigroup not only paid its chairman, Sandy Weill, $21.5 million last year, it also paid the taxes for his many benefits.

In addition to his huge salary (par for the course at the top of major US financial institutions), Weill has personal wealth in the billions. Why on earth does he need Citigroup to pay for anything? Two explanations come to mind: blind greed or the kind of moral blindness that afflicts emperors surrounded by fawning courtiers. Or maybe a combination of the two. The same outrageousness appeared when the details of Jack Welch’s retirement benefits from GE were revealed a few years ago. He made a fortune, so why did he need GE to continue keeping him in the style to which he was accustomed?

During my many years in Britain, I felt the media and public obsession with so-called fat cats (corporate leaders, often of privatized utilities who were paid lots of money) was unhealthy. But equally matters have gotten completely out of hand in the US, with the vast sums paid to top executives (far more than any British fat cats) taking a big chunk out of corporate earnings and generally having little to do with performance.

When there were still people at the World Economic Forum who solicited my advice, I remember suggesting that a session on executive pay be renamed “How much is enough?” The issue is far beyond how much is too much: of course current pay is vastly too much. There comes a point when enough is enough.

The argument that you need to pay the best people the market rate has always struck me as absurd. My observation of many, many CEOs over the years suggests that most are far more interested in the power and challenge of the job, rather than the pay. It could well be a workable solution — if there were brave companies — to pay senior executives healthy sums, but cap CEO pay at something liveable at the top end, say $1 million. I don’t believe there are more than a handful of major CEOs who would forgo power for money. Many of them would do the job for $1, like Steve Jobs at Apple.

By the way, I don’t in any way begrudge the fantastic sums made by some successful entrepreneurs (the source of Weill’s own fortune). They took risks and reaped rewards. More power to them. It’s the salaries and benefits of today’s executive class that is totally out of whack.

6 thoughts on “Blind greed

  1. Felix

    Apple paid Steve Jobs $400 million to do the job for $1. They then showered him with a private jet and so many stock options that eventually they became such a huge contingent liability that they got swapped for outright ownership of 10 million shares. (AAPL is trading at $70 per share: you do the math.) In other words, Jobs has made well over $1 billion from Apple *after* selling all of his shares. All while working as a part-time CEO and building his other company up to another billion-dollar payday. Jobs might be a great CEO, but don’t pretend he isn’t fantastically well compensated for what he does.

  2. Lance Knobel

    Details, Felix (I’d do a smiley if I knew how).

    But your account of Jobs, to my thinking, reinforces my point. He has the wealth through his ownership, so he doesn’t need a salary. Of course they overpaid for Next, but they thought they needed Jobs — and I think subsequent events have proved it was the right thing to do. When they hired him, a lot of people thought all those stock options could soon be worthless.

    Similarly, Sandy Weill has a ton of stock. Does he need to be paid $23 million? Does he need the taxes on his benefits paid by the corporation? Of course not. It’s just some sordid game of one-upmanship.

    It’s interesting to see that both Bill Gates and Steve Ballmer take salaries of $600,000, peanuts by contemporary standards. It begs the question as to why they even need that.

  3. Felix

    Be careful what you wish for, Lance. It looks as though you’d much rather executives got another few million dollars’ worth of stock (or stock options) than a few hundred thousand dollars’ worth of perks. Although I certainly agree that it’s far from clear what SW did to earn his $21 million last year, it’s that big number which angers me more than the much smaller perks.

  4. Lance Knobel

    I agree that the big number is what is obscene. But for some reason it’s the pettiness of the extras that highlights how broken the whole system is. If they were paid reasonable sums (whatever that is), then a so-called tax-efficient package that compensated them for the cost of the perks would just seem like slyness.

  5. Hal O'Brien

    Most obvious reason for still paying an exec a salary: The stock could crash to a penny tomorrow.

    In many cases, though, executive salary is a useful measure. I remember going through one year’s Wall Street Journal executive salary issue, and sure enough, most of the time a CEO’s pay is inversely proportional to a company’s profitability. Not always, but enough of the time for the trend to be seen.

    That shareholders usually don’t have a clue as to what their interest is may be seen in how they don’t reject the salaries of such hacks, or fire them, or both.

  6. Intentionally Anon

    I work for the investment banking arm of Citigroup, and I can tell you that SW is pretty widely regarded as being an thoroughly appalling shit by the people who actually make money for the firm.

    There was a very widely-reported story last year of how Weill had demanded of the managing committee that he should be allowed to (i) stand down from his duties as chairman, (ii) receive his bonus for 2005 in advance nonetheless, and (iii) receive the use of the company’s corporate jet in perpetuity. Asshole was going to found his own hedge fund, apparently.

    We grunts on the desk received a mail from the great man denying that he would ever consider such a thing, but count me skeptical.

    Bear in mind that SW is no longer allowed to attend meetings with analysts in the absence of a lawyer (google Jack Grubman if you want to know why), and you’ll understand clearly that this man should be chased right into the sea, pronto. That he’s still at the head of the company indicates that the senior management of Citigroup doesn’t believe a word of the stuff about ‘shared responsiblitieis’ with which they regale the rest of us daily.


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