Friday, March 7, 2008

Excessively Paid Executives

Awhile back President Bush signed a bill increasing the federal minimum wage over the next three years. On July 24, 2007 it was increased to $5.85 per hour. On July 24, 2008 it will increase to $6.55 per hour and then to $7.25 per hour in 2009. These increases are valuable to many struggling American households. Currently there are three men being questioned by Congress that made what those households would make in a full year in a matter of minutes.


I was appalled after reading the article, “Chiefs' Pay Under Fire at Capitol” posted by The New York Times. The article raises the question of whether top executives are paid excessively especially when compared to others in the work force. Currently three former top financial executives are being questioned about their substantial compensation while they were on the job even while the banks were in turmoil.


The three men – E. Stanley O’Neal, Charles O. Prince III and Angelo R. Moil went before the House committee on Friday. Some Republicans did not see the point of the hearing; however, the Democrats questioned why the executives were paid well even though their companies were failing.


Mr. O’Neal was the former chairman and chief executive for Merrill Lynch. During his four years with Merrill Lynch he made $70 million, however, when he left in October ’07 he was able to keep $161 million. His exit was considered a retirement, so in this case he did not receive severance pay; however, Merrill Lynch has had more than $10.3 billion in write-offs and their stock prices has fallen dramatically.


Mr. Prince was an executive with Citigroup, where he attained $110 million. When he left Citigroup in November he had an exit package worth $68 million, including another $29.5 million in stock. He also had a pension worth $1.7 million, an office, an assistant, a car and a driver. Reportedly Mr. Prince received a cash bonus in 2007 worth about $10 million. Like, Merrill Lynch, Citigroup had write-offs of about $20 billion and their share has decreased over 60%.


Mr. Mozilo was the founder and chief of Countrywide Financial. His compensation was under the microscope because since he became chief in 1999 he has made more than $410 million. According to a report by the Congressional investigators, Mr. Mozilo’s pay was increased by using flawed peer groups and easy bonus targets. Mr. Mozilo was entitled to a $37.5 million severance package; however, he forfeited this shortly after Congress requested that he testify.


There is something seriously wrong with this scenario. I understand these are top executives we are talking about but, when does their compensation become extreme? $10 million bonus? Is it right that an executive can make more than the average workers’ yearly salary in a matter of minutes? According to the article I mentioned above, Americans astoundingly believe that their business leaders are overpaid. I am interested to see what comes of this inquiry because I do believe that corporate greed is horrible and hopefully something can be done about it.

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