Monday, January 08, 2007

Fire Me, Please

I wish I sucked so bad at my job that they had to pay me to leave.

By now you’ve probably heard about Robert L. Nardelli, the former CEO of Home Depot, who “resigned abruptly” last week “after enduring six years of mounting criticism.” The controversy wasn’t over his performance. The shareholders thought his salary -- $64 million over 6 years – was exorbitant. So they fired him, with a parting gift of about 20 years’ worth his controversial salary. The New York Times headline? Highly Paid Chief is Paid $210 Million to Go Away. (Incidentally, that’s around 20 times the size of my company’s annual budget; or, put another way, he earned somewhere just above my annual salary every day.)

Is it just me, or is something seriously rotten in the State of America?

If I got fired from my job, not only would I not expect a severance package larger than the Cook Islands GDP, I would be worried about my ability to get hired again. Yet Leon Cooperman, one of Home Depot’s largest shareholders, told CNBC “about an hour after news of Mr. Nardelli’s departure” that “he will wind up making a lot more money with a lot less grief in the private equity world.”

That’s right, fresh from being tossed out on his ear (landing on a $210 million cushion) because he was making more than $10 million a year, Mr. Nardelli can now go to the private sector where, like Mark P. Frissora, who in July left his public job where “he was only making a few million dollars a year,” he could maybe expect to earn $33 million in six months (or, my annual salary about once every hour and ten minutes).

Compared to private sector CEO’s, Chief Justice of the Supreme Court John Roberts’ recent complaint seems downright modest. Federal district court judges are paid $165,200 annually; Chief Justice Roberts earns $212,100. The inadequacy of this pay scale, according to Roberts, “has now reached the level of a constitutional crisis.”

What about the other end of America’s economic spectrum? Washington Post columnist George Will said last week, “The federal minimum wage is a bad idea whose time has come….The minimum wage should be the same everywhere: $0.”

Assuming a 40-hr week, right now the federal minimum wage will earn you $10,712 annually. Will points out that “more than half” of minimum wage earners are under 25 and that 60% of minimum-wage earners only work part-time and have “an average household income…well over $40,000.” So, let’s get this straight: a $212,000 individual salary is a constitutional crisis, but a total household income of more than $40,000 – we are meant to understand that “well over $40,000” means “significantly less than $50,000 and more than one earner” – means you have no right to complain, especially if you’re under 25?

Don’t get me wrong. I’m not saying that burger-flippers are entitled to the same pay as a Chief Justice or a corporate CEO.

But is it just me, or is it obscene that corporate America complains that “regulation” – meaning federal requirements about minimum wage and benefits – renders companies “less competitive”? Competitive, in this case, has absolutely nothing to do with the quality of the service or product, and everything to do with the profit margin and the size of executive pay, which is determined by how little a company is required to pay its non-executive workforce in salary and benefits. It’s not just obscene, it’s morally repulsive when executives make thousands of dollars an hour and right-wing columnists argue that non-skilled (but essential!) laborers are hampering “market forces” (i.e., executive salaries) by asking for more than $5.15 an hour.

Or, to put it another way, on the current minimum wage, you’d have to work full time for more than 19,000 years to earn what Home Depot paid Nardelli to go away.

Hat tips: Matt’s World, Dappled Things


notreallyadem said...

While I believe that executive compensation is frequently obscene when compared to low level employees' wages, I also believe that businesses are shortsighted when they pay so highly. The astronomical salaries almost demand that only well known CEOs are worth the risk. Even when they may have ruined a company and are encouraged to move on, the elite get hired by someone else. Over and over. Exorbitant salaries hinder people who might have creative, effective ideas but no reputation and little opportunity to earn one.

Search the web for "ratio ceo to employee". Discouraging. I've always favored limiting tax deductible compensation per person to one million dollars. If shareholders want to pay executives more than that, they should pay it out of their equity.

Gino said...

i dont blame the CEO.
i blame the share holders.
its their money they are giving away.

a logical argument can be made for 'obscene' ceo pay. but i just cant see it myself.
if thats whet the money payers want to pay, i wont stop them though. free market is also he freedom to be stupid with your money.

and i dont pay much attn to things like 'the average salary in america'.
its meaningless unless the high/low cost of living is also factored in, depending on geography.
40k will net you a nice 3/2 home in MO.
it'll get you a one bedroom apt in anahiem.

The Law Fairy said...

gino, actually, I doubt it would get you a one-bedroom in Anaheim. It might get you a bedroom in a run-down multi-room apartment in a bad part of town, which you would share with noisy college students or maybe even drug addicts.

As someone who makes "a lot" of money, I could not agree more that the wealth disparity in this country is disgusting. I make more than all of my friends who aren't big firm lawyers, and thus I'm the "rich" one in any given group. Yet I often find myself fretting if I'll ever be able to own a home... right now my plan is to invest in real estate in another part of the country and hope that someday SoCal real estate prices fall, but I'm not holding my breath. Much as I love it here, I might not be able to make it my permanent home unless I completely turn over my soul to Satan by becoming a big law firm partner (that is, assuming I'm even given the opportunity... which is by no means certain). That a "rich" person should struggle with property ownership to me suggests that we've artificially inflated a lot of other things, along with corporate executive salaries.

As for people doing with they want with their money... I don't necessarily agree. When prices and salaries are artificially inflated by the demand of a select few (as they are), there are repurcussions even in unrelated sectors. For instance, if a company spends 60% of its budget (I have no idea what these breakdowns look like) on executive compensation, that is money that cannot go anywhere else. That money cannot be donated to charity. It cannot be spent on health insurance for corporate employees. It cannot be invested into research and development. It cannot be used to pay legal fees. It cannot be used to enforce the company's non-discrimination and harassment policies. Instead it goes to the executives who hoard most of it to themselves to pass on to their grandchildren (thus perpetuating a de facto nepotistic aristocracy) and who probably spend a good deal of it purchasing goods and services from other countries. Once you spend a certain amount on domestic goods and services (housing, medical needs, living expenses, domestic amusements) the money's simply going to have to go somewhere else. Thus we can't even pretend to believe in Reagan's silly trickle-down theories, as a good chunk of this money is ultimately getting exported to Red China.

The rich CEO is not going to spend a commensurate amount of his money on US medical services (thus the medical sector is left impoverished and deprived due to the unreasonably high salary of a CEO in an unrelated industry), he is not spending a commensurate amount on research and development (thus the technological sector is left deprived), he is not spending a commensurate amount on legal fees (thus the legal sector is deprived -- yes, laugh if you must... there are good people out there doing good legal work (I'm not pretending this is me) who don't get nearly enough for it), he is not spending a commensurate amount on charity (thus worthy charitable organizations are deprived), he is not spending a commensurate amount on employee morale and safety (thus even his own business is deprived).

When we overvalue CEOs it hurts ALL Americans, period. This is a problem that concerns more than the foolish stockholders (and generally if you look at the executives and board members in a given corporation, they collectively own a majority or near-majority of the stock anyway... they can hardly be trusted to administer company funds in the best possible manner).

Jeff said...

I totally agree with you, Andy. I hate the fact that having "competitive" businesses is somehow the be-all and end-all of society for some people. It shouldn't be about having our country kick other countries' asses - it should be about enabling the maximum amount of people to meet some minimally adequate standard of living. We have so far to go on that front.

Gino said...

law fairy,
i live in anahiem.
and yes, you are about right, as to what kind of 1 br you get.
a dumper here is bout 900.

40k depends on what you do with it.
figure, bout 550-600/wk take home.
factor in child expenses/support, car payment, ins... not much is left.

my base is about 40k, but i work lots of OT.
i got 2br 2ba townhouse,garage, C air, $1325. and its below market cause i been here a couple yrs.

i told the 'boss', one more increase, and consider it my 30day.
it'll cost you more to in the end, than you'll get in 4 yrs of increases. LOL

i hear ya on loving So Cal. i grew up here. but SoCal no longer loves me, so i'll be moving out,maybe TX, before year's end.

kr said...

Sometimes, people just suck.

I am never more down on "capitalism" than when this kind fo stuff goes down.

The Law Fairy said...

wow, gino, you must be a much better budgeter than I ;)

Gino said...

like i said. i work lots of OT, and have no debts, outside of cheap car payment (240/month).

though it gets a little scary at times...
now if only family members would stop asking me for $ life would be easier.

Trickish Knave said...

The golden parachute CEO's get is obscene. Ford Motor Company is another example of perverted severances thus passed on to the consumer.

The disparity of wages between the CEO and the guy that scrubs the shitter is about 250 in the United States. Overseas it is less than 10 times that amount. Captialism at its finest.

(can you tell I am getting a Masters in HRM)

Matthew said...

Y'know, with the minimum wage increase being in the news recently, I'd like to touch upon how disgusted I am every time I hear a company (typically a large corporation) bellow about how negatively a wage increase will be on their business.

We're constantly told that, if companies are forced to pay their employees a buck or two more an hour, that they will have to raise prices on goods and services in order to still remain profitable, and that they may even have to lay some people off. There is always a great wailing and gnashing of teeth, and we are often told that we simply don't understand the economics of business.

And then we read stories like the one you've linked to, and it's obvious that these companies could probably afford to pay their employees a lot more money than they do, and still be ok.