Executive Compensation has become the most contentious issue in corporate governments. Many critics claim that poorly designed executive compensation incentives helped caused the recent financial collapse, but disagree widely about what was wrong with those designs. Some also claim that many American executives are overpaid, that their pay reflects their own influence over their boards rather than a disinterested evaluation of their worth. Management and investors are wrestling over their roles in structuring executive compensation through sign on pay and the role of proxy advisory services. We will be addressing Executive Compensation in three parts. We will begin with where we have been, where are we presently and then where we need to be in the future.
We will go back to October 23, 2008, which was the height of the financial crisis. The Federal Reserve had intervened to save BEAR-STEARNS from financial collapse. In the pervious month Merrill-Lynch had been sold to Bank of America and AIG had just received a $85 billion dollar bail-out from United States taxpayers. The 158-year-old Lehman Brothers financial firm had just collapsed and filed for bankruptcy. It was an uncertain and extremely precarious time. The then President Bush asked for an astonishing 700 billion dollars to prevent a contagion from spreading through the financial markets and it was approved by Congress. So, what went wrong? How did our nation go from record surpluses in the late 90’s to the most devastating economic collapse since the Great Depression at the end of the Bush Administration? On that date October 23, 2008, these were the questions members of the Committee on Oversight & Government Committee Reform were asking at a hearing with Alan Greenspan (former Chairman of the Federal Reserve). During the hearing Mr. Greenspan made a surprising admission “ I made a mistake in presuming that the self-interest of organizations specifically banks and others was such that they were best capable of protecting their own shareholders”. Mr. Greenspan’s admission was the front-page news across the country and around the entire world. It was an acknowledgement that our government should have played a stronger role in monitoring corporate abuse and halting corporate excess and preventing corporate risk taking that rewarded massive short-term payouts over responsible long-term growth. Early in 2011 Congress created the Financial Crisis Inquiry Commission and it confirmed Mr. Greenspan’s previous testimony. The Commission found “ more than 30 years of deregulation and reliance of self-regulation by financial institutions, championed by former Federal Reserve Chairman Alan Greenspan and others, supported by successor administrations and congresses and actively pushed by the powerful financial industry at every turn, had stripped away the safe guards that would have avoided a catastrophe”. The commission went on to explain the specific role of excessive compensation and leading directly to excessive risk. The report stated the following; “compensation systems designed in an environment of cheap money, intense competition and light regulation often rewarded the quick deal, short-term gain without proper consideration of long-term consequences. Often those systems encouraged the big bet, where the pay-off on the upside could be huge and the down-side limited”. Less than two weeks after the hearing with Mr. Greenspan, Barack Obama was elected President of these United States and with a promise of making real reforms. The American people had seen what happens when they rely too heavily on corporate self-interest and they voted for change. What happened next was simply amazing especially in Washington D.C.,“Change” had occurred. President Obama worked with the Democratic Congress to enact the Dodd–Frank Wall Street Reform and Consumer Protection Act in July 2010. This landmark legislation created the first ever watchdog agency designed to protect the American consumer against the abuse of unscrupulous financial entities. The Consumer Financial Protection Bureau began its mission of enforcing federal consumer financial laws. The Dodd–Frank Wall Street Reform and Consumer Protection Act also included executive compensation and corporate governance provisions that provide shareholders a say on pay and it also provided regulators greater power to pursue financial fraud. This was a tremendous achievement and it was complimented with more robust Congressional Oversight of the financial sector. Hearing were held on conflicts of interests were held with compensation consultants. Deficiencies were investigated with credit rating agencies and examined the widening gap between the ultra rich and the majority of middle class/ hard-working American workers.
So where are we now? Today in the new Republican Majority in House of Representatives wants to turn back the clock; they want to repeal the reforms that have been put in place, which were meant to protect the American Consumer. They would like to return to the flawed philosophy of deregulation. After unprecedented assistance from American taxpayers Wall Street is back. Corporate profits have returned to their highest levels in years and executives are making record salaries. United States corporations are now sitting on trillions of dollars. The richest Americans are continuing to see their income and wealth grow exponentially. However, Main Street is struggling, although the unemployment rate has dropped slightly and continues to hover around 9%. It is even higher in minority communities. Mortgage services continue to foreclose on millions of American families, while banks have yet to be held accountable for prior abuses that caused the crisis and continue to aggravate today. There was a startling statistic on the first page of the Financial Crisis Inquirer Commissions Report; it conveys just how devastating this crisis has been for middle-class Americans. It states that nearly 11 million dollars in household wealth has vanished with retirement accounts and life savings being sweep away. Which is breathtaking and heartbreaking at the same time. Report also goes on to say: as a result of the reckless and in some cases illegal actions of corporations that cause the economic crisis, millions of hard-working Americans lost their jobs. Many of them continue to be unemployed or underemployed. Nowhere has this impact been greater than among minority households. Pew Research has found that from 2005 to 2009 the median wealth among Black and Latino households fell by 53% and 66% respectively, compared to 16% among white households. The result is the largest ever wealth gap between minority and white households since the government began publishing the data, almost a ¾ century ago.
Based on the stock figures it is obvious what needs to be done. Over the past three years the American taxpayer has given Wall Street unprecedented support and assistance. As a nation we have funded trillion dollar bailouts, in order to save them from disaster and protect our entire financial system from going. Now that they have recovered it is time for them to give back. A shift of focus should be to Main Street, the millions of middle class American families and workers, whom of which were the true victims of the crisis. Unfortunately the Republican Majority disagrees. One of the first bills they introduced in 2011 was to repel the Dodd–Frank Wall Street Reform and Consumer Protection Act in its entirety. It is as if they covered their ears and buried their heads in the sand when Mr. Greenspan testified in 2008. Republican Senators blocked the nomination of Richard Cordray as the new head of the United States Consumer Financial Protection Bureau. He was not blocked because he was unqualified; in fact, many Republican Senators conceded publicly that he was extremely well qualified for the position. His nomination was blocked because they oppose the whole idea of an agency that protects middle-class families and American consumers from the abuses of Wall Street Corporations, which of whom are Republican constituents. They oppose transparency, oversight and the enforcement of our consumer protection laws. This is pretty extreme. The United States Consumer Financial Protection Bureau was established by legislation that passed both the House of Representatives and the United States Senate and signed by the President Of the United States (Obama). Members of Congress took a swear of oath to uphold and defend the United States Constitution, but these Senators had to find a duly enacted law of the land on behalf of corporate special interests. In addition to trying to roll back these reforms Congressional Republicans launched the single most aggressive and destructive assault on American workers in modern history. They have relentlessly attacked the National Labor Relations Board and have tried to avoid fairly negotiated contracts between unions and management; they have gone after postal workers whom already face massive layoffs while agreeing to take cuts in pay and benefits. Republicans who supposedly favor tax cuts across the board are opposing tax relief for millions of hard working Americans through the payroll tax cut. These are the same Republicans that were willing to shut down the government to protect tax cuts for the richest 1% of the American population. Republicans were embarrassed in not supporting the payroll tax cut, claiming they need to pay for it with pay freezes of middle-class workers. Politicians won’t even entertain an effort to close tax loopholes for oil companies, which is considered the richest industry in the world and want American workers barely scraping by to contribute even more.
As we look to the future and try to chart a course forward, we must defend the progress we have already made. Elizabeth Warren has done more on the issues and perhaps anyone in the country, first as head of the Congressional Oversight Panel creates to oversee the implementation of the Emergency Economic Stabilization Act of 2008 and then the administration official charged with helping to set up the United States Consumer Financial Protection Bureau. She likes points out that nobody in this country got rich in two years on his or her own. We pay for the interstate highways and allow commerce to flourish in this country. Taxpayer’s investments in research a development help spawn new technologies that all businesses take advantage of today. While I respect my political leaders I sometimes fundamentally disagree with some of their policies. They caused the biggest economic collapse since the great depression. I feel that it is time for those who have benefitted from the success in this country to do there part and contribute their fair share. After unprecedented support from the American taxpayers in rescuing Wall Street from collapse it’s time for all of us to help Main Street. Some politicians are calling this class warfare and they claim it’s the redistribution of wealth. They certainly were not saying this in 2008 when Wall Street was asking Main Street taxpayers for help. The fact is that redistribution is already happening and it is going in the opposite direction. In November on 2011 in a study issued by the Citizens for Tax Justice reported that 7 out of 8 of the countries most profitable corporations paid “NO” federal taxes in at least one of the last three years. In August of 2011 the Institute for Policy Studies issued a report that found that 25 of the 100 highest paid CEO’s took home more in pay than the entire company paid in State and Federal income taxes. In 2009, corporate CEO’s made 163 times more than workers on average and those escalated in 2010 to 325 times. If you were to remember back to 2008 AIG defended obscenely high salaries for its executives who generated massive corporate profits. They continued with these exorbitant salaries even after the company went under and “needed” taxpayer bailout. Their argument was that they needed to pay these amounts in order to keep their executives from fleeing the company. Those were taxpayer funds. We heard the same argument going before our committee in November of 2011 from the CEO’s of Fannie Mae and Freddie Mac. Despite billions of dollars in support from United States taxpayers and a horrendous record of assisting homeowners avoid foreclosure. They paid their executives lavish million dollar compensation packages frequently in order to retain talent. These are millions of dollars paid by United States taxpayers going to these executives and they do not seem to be legitimately tied to positive performance. These are not the only entities currently funded by taxpayers, which pay lavish compensation to executives despite substandard performance.
In conclusion, Mr. Greenspan said his mistake was “presuming that the self-interest of organizations specifically banks and others was such that they were best capable of protecting their own shareholders”. In reality, the motivation of these CEO’s was greatly skewed to maximize short-term profits in at the expense of long-term growth. The broader point is that we are all in this together; it is not class warfare to ask the richer of our society to contribute their fair share to our nation. Expressly when they have benefited in so many ways from the unprecedented support of United States taxpayers in rescuing this economy. At the height of the financial crisis Wall Street begged for help and they got it. Now American families and workers on Main Street need help and they need help right now and it’s about time they received that much needed help. I support pro growth; I want to see corporations succeed as well as workers. Income levels need to rise across the board, with enhanced benefits, encouraged innovation that leads to a thriving economy. Families across the nation should enjoy the fruits of our economic success. Growth will not be achieved through tax breaks for the ultra rich or by eliminating regulations that ensure transparency, openness and fairness. We will not achieve this growth by attacking the American workers or their rights under the law, the very same workers whom are the engine of economic growth in this nation.