American soldiers uncover nearly $1 billion in cash in Baghdad. Former leaders such as Saddam probably have at least $5-10 billion more in their Swiss bank accounts (even the minor Arab dictators are among the world’s wealthiest people, e.g., Yasser Arafat is estimated to have a personal checking account containing $1.3 billion siphoned from Western aid). Meanwhile we were told throughout the 1990s that Iraqi children lacked food and medicine.
Is there an analogous situation right here at home? Hmm… the Board and managers of American Airlines helped themselves back in October 2002 to $41 million to guarantee their personal pensions while CEO Don Carty was stating that “Shared sacrifice has to lead to shared success…”. Thousands of workers were being laid off, thousands more taking pay cuts from what in some cases were very modest salaries. In theory you’re not supposed to start spiriting away a company’s assets or giving them to your pals before you file for Chapter 11 bankruptcy protection from your creditors. In practice the lawyer’s for American’s executives managed to construct a trust from themselves that would be unassailable and to hide the trust from their workers, creditors, and the public until a recent mandatory SEC disclosure.
http://www.governancemetrics.com rates American’s parent company, AMR, as “above average” in corporate governance.
Meanwhile US Airways emerged from bankruptcy. The creditors got 2 cents for every dollar that they were owed. The managers who drafted the reorganization plan decided that their shareholders, the folks who’d paid their salary to manage their investment, were entitled to 0 percent of the new company. They themselves, however, felt that their hard work and dedication entitled them to 8 percent of the shares in the reorganized enterprise. The theory here is that it is tough for a manager to do a good job if he or she is paid only a straight cash salary of several million dollars; the manager also needs to get an additional $10-20 million per year in stock. Business school professors who’ve studied this question find that managers who don’t get any stock or stock options do just as good a job as those who transfer a substantial portion of the company into their pockets.
US Airways likes to pay their executives even when they don’t work. Three top executives offered themselves $45 million in the event that they decided to stay at home instead of working at a merged US Air/United Airlines. The merger never went through but the guys took home an extra $35 million for failing. How did the US Airways workers fare by comparison? Nearly 20,000 have lost their jobs entirely; the rest have taken pay cuts (a US Airways flight attendant earned between $18,000 and $38,000 per year before the cuts).
How is this situation different from other industries in the U.S.? Isn’t it very common for managers and their cronies on the Board to steal from the shareholders? Of course. But the airlines are different because their executives have bludgeoned their shareholders so badly that there is nothing left to steal. The airline execs are taking hundreds of $millions in salary out of the $6.9 billion in federal aid that has come out of taxpayers’ pockets since September 11.
While American Airlines and others go bankrupt and receive federal aid and bailouts, Delta is using this market opportunity to create a new airline, Song, to compete with the successful budget airline JetBlue:
http://www.cnn.com/2003/TRAVEL/01/29/delta.song/index.html
I think the airlines that cut salries of their poorly paid employees and can’t run their own business without federal bailouts should just give up. What happened to the American religion of the “free market”?
I find myself wishing that I could vote for a free-marketeer. If only one was available on the national stage. I’ve made fun of the phrase “free-market” in the past, but George W. Bush is turning me into an adherent of Fredrich Hayeck.
Aren’t the discount airlines successful largely because they don’t have the union cost structures of the incumbents? Isn’t Wal-Mart successful largely because they take advantage of the reduced benefits of part time workers? Aren’t consumers who support these businesses saying everybody should work at minimum wage? The fat seems to be getting cut from the system. These executives better learn how to cook and clean. Might be time to short “Cartier”.
Boards and executives collude to create these situations, which amount to grand scale theft, plain and simple. There are no “market forces” at work when it comes to executive compensation. These executives serve on each other’s boards, and award themselves huge pay packages. There’s no shortage of qualified people to work at these levels, particularly at these pay points. It’s the farthest thing from the free market. And the common shareholder is the one who gets screwed, because the boards that control these companies (and who can legally change what’s happening) simply choose not to — they “play the game” instead.
Not one dime of taxpayer money should be usable for executive compensation. We can and should be passing a law that PREVENTS it.
This is truly the biggest looting job in human history, or part of it. Among the other parts, of course, is the hundreds of billions looted from the US treasury in the form of tax reductions for the wealthy, to pay off Republican campaign contributors and insure that the next round of kickbacks… errrr… contributions is even larger.
This makes the looting of Iraq — even the antiquities — look like peanuts. Perhaps that’s why Rumsfeld and Bush are so blase about the Iraqi looting. That’s small change compared to the job that the Republicans and the CEO’s of America are pulling off as we speak.
We can and should be passing a law that PREVENTS it.
OK. Um. Which “we” is going to pass this law?
The World Socialist Web Site published this article:
CEO resigns over secret executive pay deal
American Airlines unions push through concessions after change at top
By Jeremy Johnson, 26 April 2003
http://wsws.org/articles/2003/apr2003/amer-a26.shtml
Aren’t the discount airlines successful largely because they don’t have the union cost structures of the incumbents? Isn’t Wal-Mart successful largely because they take advantage of the reduced benefits of part time workers?
If you read this article in Fortune about Wal-mart entitled “One Nation Under Wal-Mart,” you’ll get a different picture of Wal-Mart’s success.
You’re obviously operating under a labor theory of economics (i.e., Marxism) in which it is labor that is the vital input. In actuality, both Wal-Mart and the airlines have incredible infrastructure and capital costs that dwarf labor costs. Naturally, labor is the most volatile and flexible and so that’s what gets cut first.
“In actuality, both Wal-Mart and the airlines have incredible infrastructure and capital costs that dwarf labor costs.”
I can’t comment on Wal-Mart’s relative costs (other than to note that their labor practices are atrocious),
but the airlines themselves claim that labor is their highest single cost – around 35-40%.
By highest single cost, do you mean total cost (all things considered) or do you mean their highest operating cost? I know businesses typically calculate operating and capital expenses differently so that airplane fuel is part of operating costs but the plane itself is capital.