Sunday, February 22, 2009

Just Say “No” to Layoffs—CEO Patriot Pledge

By Bob Rosner

How can we stop the layoffs?

These are M.A.D. economic times. That's M.A.D. as in Mutually Assured Destruction, the old Cold War strategy in which no one would be left standing after that first nuke was launched. Economic experts, who agree on little else, agree on this: If our current vicious cycle of "layoffs driving down purchasing, which increases layoffs" continues, no one will be left standing.

There is an exit strategy here that no one is talking about: billions of dollars that could be used to address the layoff cycle immediately. This is not a plea for legislation or government funds. In fact, not a penny would come from taxpayers. It's simple, voluntary and, dare I say, patriotic. The "Chief Executive Officer Patriot Pledge" (see below) is 95-word call to action for all corporate leaders, not just those in financial services, to reign in their own wretched excesses and voluntarily reinvest part of their lofty salaries and perks to keep employees on the payroll.

Entitlement and greed are the only words I can find to describe $18 billion in bonuses given during the last two months of 2008, at the same time a million people were being laid off (including at these very firms that were giving bonuses to a select few).

Who paid the bill that allowed these corporations to party?

U.S. taxpayers, courtesy of former Treasury Secretary Henry Paulson's inability to ask for any accountability from the corporations receiving $350 billion in TARP (Troubled Assets Relief Program) funds.

Who knew the "free market" could be so expensive?

Heck of a job, Paulie!

Some will scream "socialism," but socialism isn't voluntary. The CEO Patriot Pledge is pure capitalism, rewarding people when they do well and refusing to grossly enrich failure any longer. I'm not begrudging anybody for achieving success, just asking for a bonus system tied to real achievement. How do we define excessive executive compensation? And how much money are we really talking about?

The Corporate Library, a research firm, examined the paychecks of CEOs of the Russell 3,000 (the 3,000 largest U.S. companies based on market capitalization) and calculated these executives were overpaid by $14.7 billion annually. This does not include the huge paychecks of chief operating officers, chief executive officers, etc. It also doesn't include tens of thousands of executives at smaller firms. I estimate that billions could be found to reduce layoffs just from excessive executive pay.

Of course, some executives consider themselves worthy of large compensation, no matter how disproportionate or unwarranted. Just ask John Thain, former CEO of Merrill Lynch, who, in a recent interview, told CNBC that it was important, even in troubled times, to give top talent over-the-top paychecks. If these top executives, at Merrill Lynch and thousands of other firms, are so talented, then how did we end up with 626,000 new unemployment claims filed just last week, with half of our 401(k)s gone, and with, my personal favorite, a $35,000 executive commode funded from the public trough?

Fortunately, there are some executives who get it -- for example, Thomas A. James, CEO of Raymond James. Sound familiar? They are the sponsors of the stadium of the most recent Super Bowl. Raymond James had almost $3 billion in revenue last year.

Yet Tom James' guaranteed base salary was only $325,000, less than 20 times the amount of the lowest-paid worker at his company.

Compare that with the average CEO salary, which is 262 times that of the lowest-paid worker. (For every "average" salaried CEO who cuts back his or her base salary to a ratio of even 40 times the salary of the lowest-paid worker, almost 200 workers would keep their jobs.)

While the S&P 500 sank, Raymond James had a positive return for its investors. With the bonus he earned, Tom James' total compensation was slightly more than $3 million. But the key word here is "earned." It is no accident that Raymond James has a conservative compensation philosophy and the company also did well despite the carnage in the rest of the market.

Compare Tom James to Robert Iger, CEO of Disney. According to compensation guru Graef Crystal, Iger received $51 million during a year when his company suffered losses and layoffs.

This is how it should be: a CEO with a relatively low guaranteed salary and a bigger upside if the company performs for both its investors and employees. More independence is also needed at the board-of-directors level, so CEO pay decisions aren't "I'll scratch your back, you scratch mine." Finally, we need to clone Tom James to help create leaders who don't view pay for performance as an escalator that only goes up for their benefit.

What is the CEO Patriot Pledge? It's a plea to encourage American businesses to do what they have always done: lead the way with vision and creativity. Only this time, the goal is not to just create a profit, but to keep people employed so there will be a market for our products and services.

In short, our turbulent times require a reversal of a famous quote. Today, "what is good for the country is good for G.M."


"As an executive, my primary motivation is to act for the good of my company, not just my own financial gain. No one at our company will earn a guaranteed base salary more than 40 times of our lowest-paid worker, and we will offer the same health care and 401(k) matches to employees as we do for executives. We support pay for performance, so when our company's performance serves investors and employees, we'll share in the gains. When our company's performance does not adequately serve our investors and employees, we'll share in the sacrifice."

You can call this initiative naive, but remember that a similar pledge, the Sullivan Principles, played a key role in ending apartheid in South Africa. Greed isn't good: It's a symptom of poor impulse control and leads us down the path to more Lehman Brothers-style-implosions. My single voice can be dismissed easily, but all of our voices can't.

Put the pledge on the bulletin boards of your company, send it to the companies that you own stock in, and ask your friends and colleagues to do the same.

Also pass on the link to the "CEO Patriot Pledge" video on YouTube at:

Bob Rosner is a best-selling author, award-winning journalist and contributor to On The Money. He has been called “Dilbert with a solution.”

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