Don’t Blame Me – Blame the Compensation Committee!

October 8, 2008

Wall Street’s five largest firms paid out $39 billion in bonuses to its executives in 2007. That’s a fine reward for all their good work in getting us into the huge financial mess America and the world are dealing with today. And just in case you wondered whether they deserved it, just read on. They have a perfectly plausible excuse, at least one that all of their CEO buddies understand.

Disgraced CEOs Richard Fuld of Lehman Brothers and Martin Sullivan of A.I.G., whose stewardship of their respective companies drove them into the ground and cost the taxpayers billions, testified at Congressman’s Waxman’s House Oversight and Government Reform Committee this week. In the past few years Fuld made over $484 million in compensation, and Sullivan got $14 million in one year plus a $47 million severance package.

How did Fuld propose to justify his astronomical compensation packages in light of their poor performance?  “Independent compensation committees” set their salaries and severance, Fuld explained, so the CEOs could hardly be blamed.

Really? Who exactly were on these “independent compensation committees?” It won’t surprise you to find out that these independent thinkers were part of the same country club set, associated with like-minded companies that also enjoyed showering their CEOs with cash and rewards.

Lehman Brothers’ compensation committee included  John Akers, former CEO of IBM. IBM’s current CEO Sam Palmisano made $19 million in 2005 and is in line to receive a pension (yes, a pension) of $4 million per year when he retires at 65. Palmisano is himself no stranger to compensation committees, having served on Exxon’s committee which awarded retiring Chairman Lee Raymond a retirement package worth almost $400 million! Another member of the compensation committee was John Macomber, former CEO of chemical giant Celanese Corporation, which currently pays its CEO $14.6 million per year.

A.I.G., the recipient of $85 billion in bailout money coming from your pockets, had a similarly constituted compensation committee. Fred Langhammer of its committee is a director of Walt Disney, a company that provided its CEO Michael Ovitz with a severance package worth $130 million. Also on the A.I.G. committee was James Orr, III, a director of Mellon Financial Corporation, a company which paid its brand new CEO Robert Kelly $20.4 million in compensation his first year. Finally on A.I.G.’s committee we have Virginia Rometty, a Senior Vice President at IBM. I wonder if she traded notes with her former boss John Akers, sitting on Lehman Brothers’ committee, to find out what Lehman thought a reasonable compensation package looked like?

How about putting some of us on one of these compensation committees? We might have a better idea about how to reward these giants of the financial world. And it won’t involve $700 billion in bailout money.