Golden Parachutes
Lucrative CEO Compensation Packages
Originally, golden parachutes were meant to protect CEOs in the face of uncertain mergers and acquisitions (M&A) and particularly when companies face hostile takeovers. Yet, these days it's not uncommon to see CEOs walk away from their position and be rewarded exorbitant amounts irregardless company and executive performance. Essentially, golden parachutes are best thought of as insurance policies.
According to researchers at Harvard Business School:
golden parachutes for top executives were created with very specific goals: to ensure shareholders wouldn’t lose out on beneficial M&A deals and to protect executives from the uncertainty of being fired in the wake of the corporate takeover wave of the 1980s.
https://hbr.org/2016/10/a-short-history-of-golden-parachutes
Today, top industry CEOs are virtually guaranteed a financial windfall no matter what. Compensation packages for top executives often include a massive cash payout or a combination of cash and company stock potions.
Industry insiders defend the practice, often arguing that the only way to secure top CEO talent in a competitive market is by offering such compensation packages.
Golden Classic Paratroopers
In 2016, Bloomberg published a list of 20 shining golden parachutes among American CEOs. At the top of the list we find the former CEO of Wynn Resorts and billionaire casino mogul Steve Wynn.
The 76-year-old Wynn was forced to resign in early 2018 after multiple allegations of sexual misconduct and assault.
Bloomberg Top 20
https://www.bloomberg.com/graphics/2016-golden-parachutes/
Steve Wynn
Net worth: $3.5 Billion
Former CEO of Wynn Resorts and Casinos
Annual Salary: $34,522,695
Remains Largest Shareholder of Wynn Resorts: 12%
RNC Finance Chair (2016)
Before the sex scandal surrounding Mr. Wynn hit the headlines, the casino magnet and Wynn Resorts penned an agreement that virtually guaranteed Wynn a golden parachute of the first order.
- $240,000,000 in cash
- $117,776,359 in Excise Tax Gross up
I know what you're thinking.
What in the hell is an excise tax gross up?
Excise Tax Gross-Up is the tax paid by the company on the severance package
Tax gross-up can include compensations made to executives in connection to certain prerequisites which may include the use of private jets, insurance, leases, memberships, or relocation fees.
In a joint study produced by the New York Times and Equilar calculating the ratio of CEO pay to the average worker, Steve Wynn makes 909 times that of the median Wynn employees.
The study estimates that to match Wynn's earnings of $35 million:
that the median employee at his company would have to work more than 900 years to earn.
The median pay of a Wynn Resort employee is 37,963.
Gold Strings Cut
In the aftermath of multiple women coming forward accusing Steve Wynn of decades long sexual misconduct and assault, Wynn was forced out by the Wynn Resort shareholders.
The company issued a statement on February 16th, 2018 making it clear that -
former chief executive officer Steve Wynn was not entitled to severance payments or any other compensation.
The Guardian
Accordingly, Wynn's health insurance will expire at the end of 2018, and was to forfeit a personal luxury villa overlooking a Wynn Resort golf course property in Las Vagas.
[In an upcoming post on Golden Parachutes we'll take a closer look at Steve Wynn and the scandals that have rocked the Gambling Tycoon]
To be sure, Wynn is not the only CEO in the top 20 engulfed in scandal.
Oracles of Inequality
The tech giant Oracle has two CEOs with compensation package figuring in the top ten. Mark Hurd and Safra Catz each stand to earn approximately $140 million in compensation with their golden chutes. With $280 million taken together, Oracle's CEO compensation package ranks in the top 3. Both CEOs earn over $40 million a year in sa[payclary and stock options.
Oracles numbers are interesting not only due to the size of their CEO earnings but also when we compare executive pay to the average worker at the company.
From payscale.com the average Oracle employee earns about $107,000 USD. Not a bad salary to be sure, but by comparison the top two executives earn 373 times more than their employees. Not surprisingly, there are no golden parachutes for the average worker.
payscale.com
Since, Oracle has not made available CEO to employee ration thus far, these are unofficial figures and may not be completely accurate.
Income Inequality
CEO earnings have continued to skyrocket in recent years despite the fact that average worker pay has remain stagnate, and has been for decades.
In 2017 alone, CEO compensation rose significantly compared to the average wage earner.
A study by the Economic Policy Institute, a liberal think tank focused on labor issues, found that total compensation for CEOs at the 350 largest publicly traded companies in the US rose to $18.9 million in 2017, up 17.6% from the year before.
But compensation for the average worker in the US rose just 0.3%.
The same study determined that CEO's are payed 312 times more than than the average worker.
More to Come on the Topic of Income Inequality, Golden Parachutes, Obscene CEO Pay and Scandals of the the 1%.
Thanks for reading, V
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The argument for high CEO wages I hear, even in 'anarchist' groups (from anarcho capitalists) is that the CEO is responsible for making or breaking the company and so must be highly skilled and thus highly remunerated. It's all well and good for them to have a higher wage than the average employee, but to have hundreds of times more is obscene.
When we combine this situation with the reality that most people are forced to get involved with mortgages and credit cards (fake debt) - we have nothing more than plantation slavery with a different form.
This remains one of the best videos I have seen on this topic:
As an an-cap myself, the economic "defense" of such high salaries for CEOs comes down to how easy it would be to replace one. The situation becomes more obvious if you compare the salaries of professional basketball players and teachers. Society actually values teachers more, but the athletes get the big bucks. The salary isn't based on how much society values them, or even on how much the team values them, but on how ridiculously difficult it is to find new basketball talent. Meanwhile, if a teacher were to quit her job tomorrow, there's a long line of people qualified to fill her place. But even this argument doesn't explain the enormity of the disparity which, again, goes back to the fact that these companies are bloated to a degree that normal market conditions wouldn't permit. This defense/explanation applies more logically to the average disparity of CEO to worker salary, which is about 3:1.
I suspect this idea comes largely from people who haven't spent much time with CEOs. In my experience, many of them are not exactly experts in their job - in many cases they are not much better at making CEO decisions than the average 'smart' employee. I think perhaps a more objective measure of ability would help, such as IQ testing - although even these are not fool-proof (paradoxical irony intended.. lol).
As far as I am concerned, while the corruption of government does have some baring on the bloat and overpay - at the same time, the overpay is also fueled simply by a greed and heartlessness that would exist with or without state presence.
Oh absolutely - the greed is there in all of us, unfortunately. The difference is that market forces can keep the greed in check while the government paves greed a road.
Having worked in numerous industries, with a variety of people on all levels of society - I have long ago learned that those who are the most greedy/sick/controlling tend to gravitate to whatever position they can exploit to further their ends - whether that be government, corporations or elsewhere. Having seen the reality that governments tend to be little more than extensions of the capitalist corporations (given varying forms of camouflage), I don't see much likelihood of improvement simply through the deregulation of capitalism. Real change starts in the heart, not in the wallet.
My belief is that market forces give us much more regulation of greed than governments. In fact, government regulation is often enacted to remove the market force of competition and increase barriers to industry entry. As an an-cap, I wish we had more regulation than the government will ever achieve (or permit).
I see that those who seek the conglomeration of wealth and 'power' (power over) will use whatever form and tools are available to them to achieve their aims. When such 'wealth' is able to dictate who gets to 'compete' then there is no real competition - just as we see with so many industries today that are essentially all controlled by small groups at the top of their pyramids and where these groups often intertwine. The situation is more like a gang war than a 'market' and those with billions to lose often choose to work together, rather than compete and risk it all (even including assassination). In other words, as long as there are 'successful' capitalists (on a grand scale), then the system will produce dysfunction on a grand scale.
Exactly, we haven't seen true market forces play out for... ever. Even here in the US the first law ever passed was a protectionist tariff for business. But I hesitate to call this situation "capitalism." It's corporatism. Capitalism is simply a form of economic growth based on capital (savings).
Add a stuffed golden sach to the golden parachute and you have some mighty smooth and soft landings!
The real reason they defend the practice in most cases, is because of the well known revolving door and 'buddy system', where they can transfer large sums of wealth to each other using 'legalese' terms under the pretence of fair work and compensation.
Lol, yes the 'buddy system" and the revolving door. I think a lot of them end up as government regulators for a stint, remove 'barriers' to their former employers interests before returning to the corporate world with a cushy 8 figure salary.
Spot on...
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There are several reasons the connections between government and these huge corporations fuel such a wide disparity in CEO to worker pay. The biggest reason is that protectionism allows these companies to grow much larger than a competitive market would allow. Under normal market conditions, companies have to consider a variety of factors like consumer esteem (which most megacorps flagrantly ignore). And without friends in Washington favorably altering tax laws, subsidies, loan terms, etc., a corporation could never afford these CEO packages. Which is why only megacorps run pay ratios of 300:1. In the real world (and more realistic capitalism where market forces like competition actually exist) that ratio drops way down. Looking quickly, I couldn't find data newer than this, but it's still helpful: "The average CEO in the United States earned a salary of $178,400 in 2013, compared to $46,440 for the average worker (both figures exclude benefits)." (average = smaller firms not connected to/enlarged by the federal government)
I don't need to add any more to that great explanation 😇
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It drives me nuts when they get rid of a CEO by firing or forcing them out but then give them a shit ton of money. One of the companies around here where I live did that; his performance was terrible and he made a bunch of bad decisions and was forced out. They gave him millions but it’s like if he did a terrible job then he should get nothing besides the money already earned! How annoying.
Yeah for sure it's insane. There's rules and laws for the wealthy and rules for the rest of us. They get unlimited chances, we get 1 life.
Not only does it have the potential to make CEOs more irresponsible and incompetent, it is almost a mockery to the current economic climes where people are getting poorer. Funny thing is it is almost everywhere, not just the US and because of Golden Parachutes alone
That's absolutely ridicilous! Like they don't have enough money in the first place.
That frustrates me so much I can't even put it to words.
The inequalities are so big and on such a rise, I'm asking myself when will people say enough and rebel against the system?
I guess, they are just trying to squeeze us as for as much money as they can before shit hit's the fan and everything shatters to pieces.
Absolutely ridiculous numbers! I hope the Christmas party at Oracle is a covered by one of these execs.
I'll bet my 909 times less pay on it!
Ding Ding Ding! Yeah, Steve sounds like a real swell guy and the more i learn about him the more he reminds me of another casino mogul that we all know well, orange skin and all ;)
That industry seems to produce some real stand-up people! :/
It's a disgusting abuse of legalese and speaks to the age old jobs for the boys .. indeed the majority of corporate insurances (the old dead peasant's insurance was a disgusting way they further profited from low level workers) financial laws (and red tape) are written with a deliberate backdoor that enables the rich to exploit them .. much like all our tech has a backdoor to spy on us. There are CEO's that literally make a living stumbling from one disaster to another, getting paid vast sums of money .. and then leaving the rest of us to pick up the bill! Great post my friend, and one that really gets my blood boiling!
Hello!
This is the first article of yours that I've read, and I couldn't agree more. The inequality between "grunt" compensation and these "elite" executives is pure madness.
These individuals get paid unreasonable amounts of benefits, and generally; don't suffer for their poor decision making and lack of foresight.
It's a disgusting social construct, and a race to the bottom for everyone else.
I dislike capitalism.
While I agree that their compensation packages being immune from their own performance is awful, what's the issue with capitalism?
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The erosion of conditions (whether that be terms of employment, or the quality of items) all in the name of making a buck. There's efficiency, then there's ruthless cost cutting that in the long run poses a large environmental, social, and ethical cost.
A bank in Australia over a decade ago (National Australia Bank if I remember) hired an imported CEO who failed miserably in his tasks and was sacked after a year. For his year effort he got 140 million dollars if I remember.
Executives should be paid more due to the various tasks/responsibilities but perhaps it should be a factor tied to the lowest wages in the company. If you can't afford to pay the lowest paid more, the highest paid shouldn't go up either.
That's not a bad idea. Obviously not every CEO should be labelled with the same brushstroke but... apparently many of them have psychopathic tendencies and very little empathy towards others.
I wish I could drive my place of business into the ground and make double my salary and still be able to find work elsewhere when i shit the bed... one can only dream.
I remember hearing that it is very high in leaders. It is a spectrum of intensity across a matrix of positive to negative I assume. In some it makes them vet good at what they do, others well, stereotypical psychopaths.
The still be able to find work makes them robust at least, often antifragile. They can fuck up and wind up in an even better job.
This reminds me in a way of football (soccer) managers in Europe, they get the full contract (salary normally 4 years) paid in full when they get sacked, so have little to no drive to do the job well, if they get sacked after 3 weeks, they get the remainder of the contract in full.
I was going to write about this tonight.