Nell won the debate hands down, 78:22. It was a non-starter really. CEOs are worth it? Even if you believed it last year, you wouldn’t vote for it now. But there was a point when Steven Kaplan – Nell’s opponent – made this claim: “average realised CEO pay declined by 25% (according to S&P's Execucomp). And Equilar, another provider of CEO pay data, estimated that the typical CEO experienced a net worth decline of over 40%.” Well, duh? Of course, the realized pay claim turned out to be wrong, as our figures showed, because Execucomp didn’t include stock option profits or something like that…. I know, seriously. Equilar was no doubt right. Hell, stocks went down a heck of a lot and unless you’d sold all of them your net worth was going to go down.
Which brings me to my point (at last!). Steven K also made a claim – though I can’t find it now on the site – that the CEOs of Lehman and Bear Stearns lost out really badly because of all the stock they held.
In comes our White Knight, my mate Lucian Bebchuk, or Sir Lucian as he should be called.
In an op-ed in the print edition of the Financial Times, Lucian and co-authors Alma Cohen and Holger Spamann show that the named executive officers of Bear Stearns and Lehman Brothers came out way in the black. Billions of dollars in the black. In the article, based on a longer research report called The Wages of Failure, the authors show that the “standard narrative” of the meltdown of BS (now, now, that’s short for Bear Stearns) and Lehman assumes that the wealth of the top executives of these firms was largely wiped out along with their firms.
Now that might have been the standard narrative for some, but it’s never held much credence at The Corporate Library. In fact, I’ve been commenting on the “insured against failure” structure of compensation plans at these firms since 2004. I mean, just because they held stock at the time of the crash, stock that they couldn’t sell because of “effectively designed” incentive plans, it wasn’t the incentive plans that caused the excessive risk taking?
You have got to be joking.
The reasons they took excessive risks is that they’d made so much money out of these cash cows in the first place that they didn’t “give a damn” about the stock they still held.
So, the authors find that “equity sales and bonuses enabled the top five executives at Bear and Lehman to cash out about $1.4bn and $1bn respectively.” And they also find that: “These cash proceeds considerably exceed the value of the executives’ holdings at the beginning of 2000 and, in contrast to shareholders who stuck with the banks, the executives’ total pay-offs during the period were decidedly in the black.”
Wow, it feels good to be proved right and have good, solid, fat statistics to back our opinions. So, thanks to White Knights.
Paul Hodgson — Senior Research Associate
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