EXECUTIVE PAY - IS HE/SHE WORTH IT?

Bonus for failure - isn't that crazy?

Many of the demonstrators on Wall Street are young and unemployed. They have every right to be angry, when company executives and hedge fund traders are making millions, at the same time millions of ordinary people are starving. Executives even get paid bonuses for failure! The CEO of Hewlett Packard was fired last week and will get a $12 million bonus for poor performance!

The excuse is that the bonus was in his contract when he was hired. The directors of the company should be fired by the shareholders for writing such a nonsensical contract. Those extra millions should be invested in the company, or used to retain 120 employees who have just been laid off.

In the 1950's this writer attended General Electric management school. One of the subjects was rewarding people for good work. One of the principles at G.E., in those days, was that the top executive should not be paid more then 40 times the lowest paid worker.

If my memory is correct, in the 50's the lowest paid worker earned less than $4,000 annually and the salary of the C.E.O. of G.E. was about $200,000. Managers and executives received bonuses for good performance, which in good years were quite substantial. However, in bad years, and if goals were not met, the bonuses were nil.

Today top executives are paid more than 200 times the salary of the lowest worker. On top of that they receive huge bonuses, whether deserved or not. Hedge fund managers profit whether the market goes up or down, and the greater the gyrations, the more they make. However ordinary peoples' investments and 401(k) retirement funds only lose in times of falling markets and rarely recover full value when the market goes up.

No wonder ordinary people are frustrated. And their elected representatives to Congress proclaim that that their benefits must be cut to balance the budget. But God forbid that taxes on the wealthy be raised, or that subsidies to the oil companies and large agricultural concerns be eliminated.
One senator said the other day, on a talk show, that increasing the tax on millionaires by 10% would only cut less than a billion dollars from the deficit, and would discourage the millionaires from investing in American business!
Unfortunately the talk show host was not savvy enough to point out that in Scandinavia and Germany taxes on the wealthy are more than double the American rate and unemployment in those coutries has declined (in Germany it is currently about 3.5%). In those countries the ratio between top and bottom salaries is still less than 50.

Europe and China are investing billions in infrastructure and new technologies, such as new sources of renewable energy and high speed transportation. Our politicians don't bother to study economics. Even Republican economists and editors of such right wing business magazines as Barron's and Fortune insist that America must invest immediately in these technologies, in research and education and to restore the infrastructure, but politicians pay no attention.

Michelle Bachmann at the height of the fear that America would default on its debt, proclaimed "We will not vote to increase the debt limit. If America defaults, so what?" The following day the markets in America and Europe dropped 6%, and have been unstable ever since, to the joy of hedge fund operators, all generous donors to Bachmann's coffers. Meanwhile, Congress lurchs from one short term budget extension to the next. And America continues in recession with high unemployment.

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