A Little Healthy Outrage on Executive Pay

Roger Lowenstein had an excellent Bloomberg column a couple of weeks ago on outlandish executive compensation. Unfortunately, it got one of those bad Bloomberg headlines, so you might not have read it:

Think About Sin When Bonuses Are Revealed

Yes, father.

Unfortunately, this isn’t one of those Bloomberg headlines that are so bad they’re kind of good. Like:

Marijuana-Like High Helps Ex-Trashman’s Syn Battle Solid Sex


Darth Wall Street Destroying Debtors With Credit-Default Swaps

This one’s more like:

Savannah Cries Over Bicycle Lost After Subprime Reset

A “please, don’t read me” hed.

Anyway, the weird thing is that Lowenstein’s column isn’t about thinking about sin. He doesn’t mention the word until his second-to-last paragraph:

Viacom and Oracle are cases of pathological greed, but the essential sin of grabbing and then grabbing more — without any downside — is commonplace.

What he’s focusing on is how the Dodd-Frank’s weak tea financial reform didn’t really do a thing about obscene executive compensation, like Larry Ellison’s at Oracle:

Last year, Ellison reduced his salary to $1. How magnanimous. He also got a whopping $62 million in stock options, in addition to $6.5 million in “non-equity incentive.”

Why a multibillionaire needed the motivation of stock options or an “incentive” plan is a question for Ellison’s psychiatrist. You would think his 1.1 billion shares — a 22 percent stake — was motivation enough. In each of the previous two years, he was paid $85 million.

I doubt that any performance would truly justify Ellison’s take; Oracle’s didn’t come close. Over the 10 years through Dec. 31, Oracle stock is up less than 1 percent a year.

And he spotlights Viacom’s Philippe Dauman, whose outlandish pay package details include a stock bonus of $31 million, plus $28 million in options and an $11 million cash bonus.

Lowenstein doesn’t add it up, but Dauman got a total $84.5 million from Viacom last year. Why? Viacom’s shares are up just 1 percent a year since 2006, Lowenstein reports. He calls it “pathological greed” and “plunder,” and I’d like to see you make a case against that, much less against it being “sin.”

Recall that the Dodd-Frank reform gives shareholders a “say on pay”—a vote on whether executive compensation is too high. The silly thing is, it’s nonbinding. So shareholders can vote it down all they want, but CEOs and their pals on the board of directors can ignore it and keep forking over the millions.

In the coming proxy season, you will see executives getting huge raises and justifying it on the basis that their stocks and profits are up. But a CEO’s impact is felt over many years — not just one. A single up year doesn’t warrant a big bonus if the longer-term performance was mediocre. Nor is simply riding a stock down and then up again cause for celebration. When a batter in baseball slumps to .200, he doesn’t deserve a bonus for getting his average back to .250.

I’m pretty sure I wouldn’t have used baseball players as a comparison to overpaid and underperforming executives.

But it’s nice to see outrage from someone like Lowenstein, who’s not exactly an, uh, Jacksonian populist.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,