CEO pay schemes targeted by stockholders, judges, unions

 Bill Knight column for 5-13, 14 or 15, 2021

 GE shareholders last week rejected a $47 million bonus set for CEO Larry Culp after members of the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers/Communications Workers of America (IUE-CWA) protested at GE’s Boston headquarters.

Culp is the sixth richest American CEO, according to the New York Times, and has steered a company offshoring work and laying off employees.

Also last week, bankruptcy judges for ex-retailer Toys “R” Us started proceedings to put former top executives on trial for millions of dollars in bonuses they took days before the company declared bankruptcy.

Toys “R” Us Chief Executive David Brandon got $2.8 million as part of a deal for top executives, according to the Wall Street Journal, which noted that the trend of execs taking bonuses right before companies go bankrupt – leaving creditors and workers up in the air – has happened with other corporations such as J.C. Penney and Hertz.

Last month, the Teamsters union, which owns about 7,000 shares of McDonald’s, sued 9 of 12 members of the company’s board of directors concerning $56 million in cash, bonuses, stock options and other benefits for McDonald’s ex-CEO Steve Easterbrook.

The size of the “windfall” bonus was only part of the union’s claim, which says the board failed to appropriately investigate Easterbrook’s relationship with a co-worker that violated corporate policy, which resulted in his 2019 termination.

“The board permitted him to walk away with a lavish severance package worth tens of millions of dollars,” the Teamsters allege. “The company simply had no business rewarding an executive who had a known history of flouting company policy with such a massive exit package.”

Instead of firing Easterbrook “for cause” due to the violation – depriving him of his severance – the board discharged him “without cause,” so he could keep the generous package.

Elsewhere, economic accountability seems absent in too many executive suites.

GameStop CEO George Sherman is leaving that embattled corporation July 31 with $169 million in vested stock despite dramatic losses of value this year. In January, stock manipulations inflated its share price to $483 after ending 2020 at $19.

Other corporate chiefs remain at their jobs with lucrative bonuses – some despite dismal financial performances of companies they supposedly lead.

“Many of these CEOs have improved profitability by laying off workers,” said U.S. Sen. Elizabeth Warren (D-Mass.), who’s proposed new taxes on the ultra-wealthy.

“A tiny handful of people who have shimmied all the way to the top of the greasy pole get all of the rewards, while everyone else gets left behind,” she added.

“Winning for losing” examples:

* Boeing CEO David Calhoun got compensation worth $21.2 million for 2020, when the company lost $12 billion;

* Hilton CEO Chris Nassetta received $55.9 million in compensation when the hotel chain lost $720 million; and

* Norwegian Cruise Line CEO Frank Del Rio was given $36.4 million in pay last year, when Norwegian Cruise lost $4 billion.

Meanwhile, the labor-backed Economic Policy Institute reported that CEO pay continues to skyrocket compared to worker compensation. The gap between executive compensation and average worker pay has been growing for decades, but CEOs of big companies now make, on average, 320 times as much as their typical worker, according to EPI, compared to 61 to 1 in 1989.

From 1978 to 2019, compensation grew 14% for typical workers but rose 1,167% for CEOs.

Such excesses call for more vigilance and action by boards of directors, shareholders and employees.