There they go again. The near collapse of financial markets in 2008 was in no small part due to deeply flawed executive pay practices at large financial companies that rewarded the quick deal and short-term “profits” at the ultimate expense of shareholders and taxpayers. Yet, despite the enormous damage to the US economy, it looks as if the “heads I win, tails you lose” pay plans that fuelled financial industry recklessness are making an unwelcome comeback.
Total compensation at publicly traded Wall Street companies hit a record $135bn in 2010. Taxpayers who bailed out the banks have a right to be outraged at excessive pay. Shareholders and boards of directors have an obligation to protect long-term corporate value. And regulators need to critically review the form of compensation to rein in excesses.
In the run-up to the meltdown, huge pay-outs were given to executives who drove their companies over a cliff. Stanley O’Neal received $91m in 2006 as Merrill Lynch careered towards disaster. Martin Sullivan was paid $107m over four years as he piloted AIG to a $180bn taxpayer bail-out. Citigroup’s Robert Rubin drew down more than $115m during his tenure at the bank; Tom Maheras, co-head of investment banking, made more than $34m in 2006 alone as Citigroup became almost a ward of the state.