Automaker CEOs Working for a Dollar a Year? Well, Sort Of

In 1979, when the federal government bailed out Chrysler, its then-CEO Lee Iacocca helped win congressional approval of a $1.5 billion loan guarantee by agreeing to a $1-a-year paycheck. At the time, little did he know that he was setting a precedent that would return to haunt his successors 29 years later.

On December 2, the three auto CEOs were questioned by House and the Senate committees — relentlessly and a little unbecomingly in my opinion — not only about compensation but such things as their use of the corporate jet and how they traveled to Washington the second time around. Honda’s — excuse me, Alabama’s — Senator Richard Shelby, the senior Republican on the Senate panel, in an effort that seemed designed to humiliate more than elicit real information, grilled the executives about how they got to Washington, suggesting that driving in lieu of flying was a stunt. Shelby’s line of questioning included these queries: “Did you drive or did you have a driver? Did you drive a little and ride a little? Are you going to drive back?” This prompted Senator Christopher Dodd, the Democratic chairman of the Senate Banking Committee, laughing uncomfortably, to interject: “Where did you stay? What did you eat?” “The chairman wants to make light of this,” Mr. Shelby replied. He was not amused.

But it was no joke when it came to foregoing compensation and, for a while anyway, the CEOs were ambivalent on the subject. On their first day of testimony, when Alan Mulally, Ford’s CEO, was asked whether he’d cut his $2 million salary to $1, he demurred, saying, “I think I’m ok where I am.” GM Chief Executive Rick Wagoner brushed back a similar inquiry, saying “I don’t have a position on that today.” That weekend, Saturday Night Live did a number on the execs and the boards of directors of each company began to register concern about adverse public opinion, as well they might. So, when they showed up again on Capital Hill, they were a little more compliant.

Although press reports were not always clear on the point, it seems that all three CEOs agreed to limit their 2009 compensation and their executive perks in one way or another. Rick Wagoner of GM told Congress that his compensation and that of GM’s board of directors would be reduced to $1 in 2009, that the next four highest ranking corporate officers would have their cash compensation cut in half, and that use of corporate aircraft would cease. Ford confirmed that it would sell its five corporate jets and that, “should Ford need to access funds from a potential government bridge loan,” CEO Mulally would work for a salary of $1 a year. Further, Ford said it was canceling all bonuses to be paid in 2009 for all management employees worldwide and foregoing bonuses for all employees in North America. The company also will not pay merit increases for North America salaried employees in 2009. Over at Chrysler, CEO Robert Nardelli reported that his annual salary is already set at $1 and that he gets no health care, insurance or similar benefits from the Company. Furthermore, Chrysler did not pay salaried merit increases or performance bonuses in 2008, and has not planned salaried merit increases or performance bonuses for 2009. Management has no options or restricted stock units. Nardelli promised that top management “will continue to share in the sacrifices of the salaried workforce and bear 100% of their healthcare premium costs.”

These cuts in executive pay are good, though they’re mainly window-dressing and image-making devices that don’t come close to solving the automakers’ liquidity problems. On the other hand, they do address an underlying problem that’s much bigger than the auto industry: the gross overpayment of CEOs in this country, a practice that has been gaining steam for the past 30 years. For example, it’s a little hard to feel sorry for Alan Mulally who, though biting the bullet next year, has taken home about $50 million since taking over at Ford in 2006 — that’s all of two years ago. And Rick Wagoner’s 2007 compensation package totaled $15.7 million, though GM reported a loss of $38.7 billion that year. As for Robert Nardelli, because Chrysler is privately owned and not publicly traded, it is not obligated to report its executive compensation. It’s been said, however, that Nardelli’s employment contract with Chrysler does not call for the payment of compensation. But don’t cry for him either: when he was fired as the CEO of Home Depot in January of 2007 before coming to Chrysler, his golden parachute was estimated to be valued at $210 million. In so doing, I’m sure Home Depot’s shareholders take solace from the fact that it was they, not the feds, who ultimately bailed out, not Chrysler, but its CEO. Hopefully, their generosity will get Mr. Nardelli at least through the middle of next summer.

• Banker CEOs Working for a Dollar a Year? Don’t Think So. Do you know how the funds comprising the $700 billion Troubled Assets Relief Program (TARP) are being used by Treasury Secretary Henry M. Paulson, Jr.? Well, if you thought they are being used to buy “troubled assets” held by banks (as the name Congress gave to the fund implies), you’re wrong. You’re wrong for the reason that on November 12, Secretary Paulson made the stunning announcement, surprising even those in the financial world, that he wouldn’t spend a dime for that purpose. Oh, and Paulson also decided not to refinance defaulted mortgages, which was another objective of the bail-out discussed in congressional hearings. No, the only use to which the fund is being made is for bank recapitalization, that is, to purchase preferred stock of banks.

Okay. So now the government owns a piece of the banks, (though it owns only preferred stock, which has no voting rights — another stellar decision). But what have the banks used the money for? The law provides that they can use the money for any “lawful purpose” which, of course, includes funding contracts the banks are legally obligated to pay. And that, folks, means paying off the employment contracts the banks have with their executives, including the obscenely large bonuses — contracts that are legally enforceable but which funded the corporate greed that created part of the problem in the first place.

Frank Rich of the New York Times reports that during the week of December 15 ABC News asked 16 of the banks that have received handouts from the Treasury Department the same two questions: How have you used that money, and how much have you spent on bonuses this year. Their answer? Most of them told ABC to jump in the lake — that is, they refused to answer. Rich also said that Congress “can’t get the answers either.” The congressional oversight panel declared in a first report this month that “the Treasury is doling out billions ‘without seeking to monitor the use of funds provided to specific financial institutions.’” When the Government Accountability Office looked into it, it found that “the standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.”

While ABC couldn’t get anywhere with its investigation of current practices, the Associated Press performed a study of bank executive compensation in 2007. On December 22 the AP reported that banks that are getting taxpayer bailouts (and were thus under-performing) awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year. The study included some 600 executives who, on the average, were thus compensated at the rate of $2.6 million for the year. The $1.6 billion total would have covered the bailout costs for many of the 116 banks that have so afar accepted tax dollars to boost their bottom lines, the AP said.

Whatever one may think about it, it’s hard to deny that Congress and the Treasury Department treat Wall Street one way and Detroit another. And as far as accountability is concerned? The lack of it in the Greenspan era of deregulation when things fell apart is being matched by the lack of it in the Paulson bailout plan designed to put things back together again. Accountability wasn’t part of the system then, and it’s not part of the system now.


The lesson to be learned from these stories is that despite the fact that so-called “class warfare” is decried and deplored in this country, the class of the financially rich continues, day after day, to dump a load not on just the poor, but on the middle class. Perhaps even more important is that our representatives in Congress do pathetically little to protect and support us. The big question now is what President-elect Obama will do about it.