CEOs fake the money and run
Take this; now go away
By Al Lewis
Tuesday, November 27, 2007
Latest market rumor: Citigroup plans to cut up to 45,000
CNBC reported it Monday. A Citigroup spokeswoman told The
Associated Press, "Any reports on specific numbers are not
But my guess is that thousands of Citigroup's 320,000 employees
need to go because the world's biggest bank is steeped in
In the third quarter, Citigroup wrote down $6.5 billion worth of
bad subprime debts. And earlier this month, it warned it would
need to write down $8 billion to $11 billion more in the fourth
Charles Prince, not to be confused with Prince Charles,
announced his resignation as Citigroup's chief executive Nov. 4.
"Given the size of the recent losses in our mortgage-backed
securities business, the only honorable course for me to take as
chief executive officer is to step down," Prince, 57, said in a
Another honorable course might be for Prince to give back some
of the millions he was paid, presumably for the brilliant
leadership and keen decision-making that led to this looming
Prince reportedly leaves Citigroup with more than $60 million in
vested stock holdings and a pension. He'd already bagged $53.1
million in salary and bonuses over the last four years. And he
keeps all this dough despite the fact that Citigroup stock has
lost more than 20 percent since he became CEO in October 2003,
and the extent of its subprime losses, though now in the
multibillions, has yet to be fully tallied.
In the old days, bank chiefs who made loans to shaky borrowers,
wrote off billions in losses and cut thousands of jobs did not
make more than $110 million for four years of work.
Prince's resignation followed the ouster of Stan O'Neal from the
top job at Merrill Lynch & Co. after its $8.4 billion write-down
of mortgage-related losses. O'Neal left Merrill with a $161.5
million retirement package.
"It's the same old story," said John Holcomb, a professor at the University of Denver's Daniels College of Business, who
studies ethics and executive compensation. "Most of the time,
these guys are going to get what they can get."
Remember Enron? Remember WorldCom? Remember Tyco? I guess
Holcomb blames boards of directors for cutting contracts with
executives that can't be canceled without a lot of money
Unfortunately, too many boards are stocked with the overpaid
executives of other underperforming companies, so all they know
is how to hire another performance-faking jerk like themselves.
History is clear: The more you pay CEOs, the worse they
This year, Home Depot announced plans to pay CEO Bob Nardelli
$210 million just to quit. It had already paid him hundreds of
millions to fumble around for six years.
When the housing market boomed, Home Depot boomed; when the
housing market sagged, Home Depot sagged. And somehow, we're to
believe none of this would have been possible without a highly
paid executive leading the charge?
Too many CEOs are getting paid too much money for faking it.
What Prince accomplished at Citigroup, we now learn, is leading
to billions in losses. Soon, Citigroup — which has already laid
off 17,000 people — is going to be cutting a lot more.
Christmas is just around the corner, and thousands of people
will be sitting in their cubicles, doing their jobs, praying
that the pink slips don't land on their desks because the
honchos were paid handsomely to place big bets on shoddy
subprime loans. Loans even a child might question.
This story goes on and on and on. Most of the money all of
these high rollers are playing with is our money. Our pensions,
our 401(k) plans, our savings. And they put it into Internet
startups or subprime-lending schemes, and then when the whole
thing blows, they get a bonus.
Doesn't anybody ever get angry?
Yes, said Holcomb. But they don't know how to direct it.
"Rather than become energized with outrage, they have become
paralyzed with outrage," he said.
So our nation's top corporate executives keep bagging big
bonuses even as they are losing our billions.
Al Lewis' column appears Sundays, Tuesdays and Fridays.
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