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.

The "Gas Man"

Do any of you ever read the column that appears periodically in the Traverse City Record-Eagle on the subject of oil and gas prices? It’s written by Stephen Sutherland, an area local who, he says, has been “in the oil business for most of my life,” and who labels himself “The Gas Man.” Mr. Sutherland touts himself as an expert on the production and marketing of oil in both the domestic and world markets. I have my doubts. But one thing I don’t doubt is that whatever might be his level of knowledge about oil prices, Mr. Sutherland is on the steep side of the learning curve when it comes to the environmental effects of the consumption of oil and other fossil fuels.

In his most recent column [December 5], Mr. Sutherland states that in the first 10 months of this year the demand for oil in the U.S. fell by 5.2%, the largest drop since 1981. Because of this environmentalists have lost interest in global warming. “Tell me, when was the last time you heard former Vice President Al Gore or any other politician talk about ‘Global Warming?’” he asks. “The words have been removed from nearly everyone’s vocabulary.”

To this very interesting, if implausible question, Mr. Sutherland has an equally interesting, implausible answer. Implying that environmentalists are adrift in their own alarmist theories, he suggests that their most recent ploy is to resort to putting the global warming pea under a different shell and calling it something else. “Now, it’s called climate change,” he says. (Yes, he really says this.) “Even the newest commercial on the survival of the polar bears does not mention global warming,” he continues, “it talks about climate change.” Sutherland then asks, “But when did that happen and why has it not been reported?” (Yes, he really asks this.) He concludes his commentary with the grand pronouncement that “Of course the climate is changing, as very little in this world remains constant.” Ho hum.

What Mr. Sutherland doesn’t know, of course, is that in the contemporary context global warming and climate change are much the same thing. This is to say, we’re are talking about a change not to a colder, but to a warmer climate and, to state the obvious, the earth gets warmer when its temperature and its climate get warmer. How else would you warm the earth, we might ask, other than by raising its temperature?

"Climate change," according to the Environmental Protection Agency, "refers to any distict change in measures of climate lasting for a long period of time." "In other words," the EPA continues, "'climate change' means major changes in temperature, rainfall, snow, or wind patterns lasting for decades or longer." (“Climate,” by the way, is defined as “the meteorological conditions, including temperature, precipitation, and wind, that characteristically prevail in a particular region.”) On the other hand, "global warming," says the EPA, "is an average increase in temperatures near the Earth's surface and in the lowest layer of the atmosphere. Increases in temperatures in our Earth's atmosphere can contribute to changes in global climate patterns. Global warming can be considered part of climate change along with changes in precipitation, sea level, etc."

The fact of the matter is that when it comes to the basics about global warming and climate change, Mr. Sutherland really doesn't know what he's talking about.

In In Praise of Nature, Stephanie Mills sets all of this out in just a couple of sentences: “Primarily from our burning of fossil fuels, we are adding carbon dioxide (and several other “greenhouse” gases) to the atmosphere. (For instance, an automobile driven ten thousand miles a year will produce its own weight in CO2 annually.) This increased concentration of greenhouse gases is trapping more solar warmth. The consequence of this global warming will beggar the imagination, and only radical change in our pattern of energy use can mitigate them.” Unfortunately, Mr. Sutherland seems to have no understanding of these matters, nor does he appreciate the effect that burning oil products contributes to global warming — or, for that matter, to climate change. My suggestion to Mr. Sutherland is that he very quickly get busy doing some heavy reading of the likes of Stephanie Mills and Bill McKibbon.

[For those of you who are not from this part of northern Michigan, Stephanie Mills is a highly regarded, published author who often writes about nature and environmental issues. Moreover, she’s also local, residing near Maple City here in Leelanau County.]

The Fart Theory of Market Fluctuations and Other Items of Interest

• UBS, the Swiss banking giant, announced on Monday that its top executives would not get a bonus at the end of the current year “as public scrutiny of bankers’ compensation intensified under bailout plans by governments.” The move followed that of the top seven execs at Goldman Sachs who also fell on their compensation sword the day before and, a month before that, the CEO of Deutsche Bank announced he would forego his bonus this year “as a very personal sign of solidarity.” Other banks and investment houses (e.g., Morgan Stanley) were expected to follow suit. This activity followed a warning given by Representative Henry Waxman (D-CA), chairman of the House Oversight and Governmental Reform Committee, that banks that use taxpayer bailout money to pay bonuses would face a public outcry. This was a major sacrifice (read: “very personal sign of solidarity”) by these top dogs. For example, this year, Lloyd C. Blankfein, Goldman’s chief executive, will have to get by just on his base pay — $600,000. Last year his total compensation, base pay plus bonus, was a mere $68.5 million. Hopefully, ole’ Lloyd put some of that somewhere safe, like under his mattress and not in Goldman stock (which is down about 70% since the same date last year), and that he’ll be okay during these tough times.

• Matt Taibbi, the insightful but underrated political correspondent for Rolling Stone, has a post-election analysis in the current issue entitled, “Requiem for a Maverick.” But it’s the sub-title that’s the winner: “John McCain ran one of the most incompetent, schizo campaigns in history — and for that we owe him big-time.” My sentiments, exactly.

• The New York Times reported on Thursday that a federal appeals court blocked Royal Dutch Shell from drilling oil wells off Alaska’s North Slope. The reason: the court found that the Bush Interior Department had failed to conduct an environmental study before issuing the company’s drilling permit. Failure to properly perform an environmental study is a violation of the 1970 National Environmental Policy Act which means, of course, that a federal agency violated a federal law. What was overlooked was the requirement that the federal agency assess the impact that offshore drilling would have on bowhead whales in the Beaufort Sea as well as indigenous communities on the North Slope.

• Also on Thursday the Times also reported that a federal district court judge in Washington issued “a sharp setback” to the Bush administration, ruling that five Algerian men were held unlawfully in Guantanamo for nearly seven years. Until the Supreme Court ruled last summer that Guantanamo detainees had the right to raise constitutional issues affecting their detention in habeas corpus petitions, the government could, and did, hold persons without charge, without counsel, and without allowing even the detainees themselves to be informed of the evidence against them. This was the first such habeas corpus case to reach the courts. The “secret evidence” against the five Algerians consisted of a single “classified document from an unnamed source.” So here we have: five men, seven years, secret evidence, one document, and an unnamed source — Franz Kafka couldn’t have thought up a more insidious scenario. It was the second important story of the day about the federal government violating a federal law.

• On Friday, the stock market was heading for another big dive when, all of a sudden — ta, da — word leaked out that President-elect Obama was about to nominate Timothy Geithner to the post of Treasury Secretary. Timothy Geithner is currently president of the Federal Reserve of New York, an extremely important position in the financial and economic worlds, and is a guy that Wall Street absolutely loves. So, what happens? What happens is that after the news reached the Street in the late afternoon, the Dow surged upward by nearly 500 points (more than 5%), thus ending the day, and the week, on a somewhat positive note for a change. (The Wall Street Journal’s lead editorial on Saturday was entitled, “Geithner Nets 500 Points.”) All this on the appointment of one guy.

It seems to me that any financial system that is that sensitive to the presence or absence of one guy, even the top guy, is just a tad nuts. I don’t care if Obama selected one of the twelve apostles to run the Treasury, it shouldn’t determine the investment fortunes of millions of people. But it’s been that way for some time now. Remember Alan Greenspan? Remember his explanation for the stock market boom of the 90s — “irrational exuberance”? Remember back then when Alan could do no wrong (he later received the Presidential Medal of Freedom from President Bush, was knighted by Queen Elizabeth, and received the Legion of Honor from the French). Unfortunately for Alan, however, is that he’s been in for severe criticism lately, and he himself admitted before a Congressional committee on October 23 that he “made some mistakes,” mainly about de-regulation.

One thing I do remember back in the 90s is how everyone was irrationally exuberant about the deference they were willing to pay Alan and how they fawned on his every word. If he said something even vaguely nice about the economy, the market went up by 40 or 50 points; and if he rolled his eyes about interest rates or the prospects of inflation, the market went down by an equally significant number. I had the feeling then that if Alan were to fart down-wind, the market would go down, and, conversely, farting in the other direction made the market go in the other direction. It was then that the Fart Theory of Market Fluctuations was first conceived. That theory is still sound, and it was evidenced once again by Timothy Geithner’s expected appointment as Secretary of the Treasury.

More On "Irrational Exuberance"

Last time I closed with a bit about how, most of the time, the brokers and traders who buy and sell on the stock market, and thereby determine market prices, have very little idea what they‘re doing. While they’re not always exuberant — and lately they’ve been far from that — to my mind they’re often irrational. These are the guys who Michael Moore recently described as Wall Street “Ponzi schemers who concocted Byzantine ways to bet other people's money on unregulated credit default swaps, known in the common vernacular as unicorns and fairies.” In any event, there’s another compelling story of irrationality in the market last week. On Monday, December 1, the Dow Jones average once again went into the tank, this time for a minus 680 points (7.70%). It was the fourth biggest point drop and the 12-biggest percentage drop in history — and history means since the Dow was created in 1896. The reason: well, according to the experts, the reason was that a committee of economists (the National Bureau of Economic Research) “officially declared” (the operative words) that we are in a recession. Yes, these guys announced we are in a recession and, not only that, but said that we’ve been in it since last December! And so the Dow took another dive. Never mind that everyone has known this for some time — the economic indicators (gross domestic product, unemployment rate, stock prices, bank closings, mortgage foreclosures, wholesale prices, and the like) have all been doing bad things for quite a while now — so, in real time, nothing actually changed. Except that the recession was “officially declared.” So it follows that the market plummets. Right? Wrong. Actually, there is a way of handling such terrible statements of the obvious. To learn how to do this we have only to turn to our good friends in Latvia. Yes, no kidding: Latvia. On the same day we got the official bad news about the recession, the Wall Street Journal reported that Latvia recently took the “novel step” of containing its economic crisis by directing its Security Police to bust an economist for being “too downbeat.” “Too downbeat” . . . hmm. Presumably that would include shouting from the rooftops that we’re in a recession. Over in Latvia it seems that Dmitrijs Smirnovs, a 32-year-old university lecturer in economics, was taken into custody and questioned for two days for “badmouthing the stability of the Latvia’s banks and the national currency.” “All I did was say what everyone knows,” said Dmitrijs, which, of course, is exactly what was done here last Monday. The Police ordered him to keep quiet, not to leave the country, and confiscated his computer, in what was described as a “form of deterrence” designed to protect “state economic security.” Hopefully, the guys in Washington and New York who oversee our stock market (if there are any) will learn from this, for we probably could have avoided this most recent historic fall in stock prices altogether if the committee of economists had simply been told in advance to shut the fuck up.