By Dom Serafini
Years ago –– before vertical integration, consolidation, M&A and globalization were all the rage among industrialists, investors, speculators and financial experts everywhere –– executives were compensated for their ability to make money.
Today, in view of the enormous financial losses that many entertainment and other companies are experiencing, it looks as if U.S. executives are paid based on their ability to lose money.
Warner Bros. made a fortune with The Dark Knight but fortunately for the top executives, its corporate parent, Time Warner, lost $24.2 billion. Others, like News Corp., only lost $6.4 billion and Sony lost a pittance of $2.89 billion.
Better managerial skills are found elsewhere. Earlier, the insurance giant AIG reported losses of $25 billion and Citigroup lost $24 billion. And what about losses accumulated by the car industry, like Ford ($18.9 billion) and GM ($42 billion)?
We have reached a point that — when financial institutions like Goldman Sachs declared losses of only $2.1 billion, and entertainment conglomerates, like Disney, announced losses of just $900 million — corporate leaders call their peers incompetent for losing so little. Considering the general corporate aversion toward profits, last year, when Intel announced record sales of $10.7 billion and profits of $2.27 billion, its stock was immediately penalized with shares losing 12.5 percent.
Examples of CEOs rewarded for having generated huge losses are: Maurice R. Greenberg, former head of AIG; Sanford I. Wells, former chief of Citigroup and Henry M. Paulson, Jr., former head of Goldman Sachs to name a few. This latter one, despite the low losses recorded by his company –– which place him among the least competent at generating losses –– was nonetheless rewarded with the appointment of Secretary of the Treasury in the Bush-Cheney administration.
Last September, The New York Times published an abridged list of 16 CEOs whose companies lost between $2 billion and $25 billion and yet were compensated with salaries and bonuses ranging from $4 billion to a mere $3.2 million. One can consult the website of Equilar for a complete list.
Today, in America, in order to reach top corporate levels it is not sufficient to have the ability to lose money. It is also necessary to know how to receive subsidies from the federal government.
When the “Troubled Asset Relief Program” of the U.S. Treasury Department handed over the first $254 billion in taxpayer money to nine banks in October 2008, they were supposed to lend that money to small businesses and home buyers in order to keep the real economy going. That money, however, wasn’t contingent to any strings attached, so the banks used the money for other things — like covering their losses and paying executives bonuses.
Recently, Barack Obama’s administration allocated $700 billion to rescue financial companies on the brink of bankruptcy, but only after the top executives of one of them, AIG, came back from a vacation that cost the failing company $442,000.
Most likely due to the stress caused by the need to generate losses, top managers of financial bank Lehman Brothers turned to the services of high-paid call girls who were then billed to the failed company. One executive managed to bill a reported $41,600 for such services.
When the ABC TV network asked executives from 16 U.S. federally subsidized banks if any of that money went to executive bonuses, many refused to answer. Earlier, the Financial Times (FT) wrote that bonuses paid to executives of failing banks were drawn from healthy funds. Puzzlingly, FT did not bother to explain why, if the banks had money to pay bonuses to their executives, they needed taxpayer money to make them solvent.
Then, there is the Detroit problem –– meaning the U.S. automobile industry which was deliberately pushed into a ravine by the notoriously competent managers in generating losses –– where top executives went to Washington, D.C. to ask for government handouts in their private jets. Those managers knew perfectly well what Wall Street was looking for (i.e., losing money), but they were oblivious to what their consumers wanted.
Therefore the message to those young aspiring CEOs, CFOs, COOs, CIOs and other C-types of titles is loud and clear: If they don’t master the ability to lose money big time, fugettabout getting a plum job! So, if you’re one of those aspiring Cs, get ready to rewrite your resume, bearing in mind that any losses below $1 billion are considered amateurish. After accurate analysis, we at VideoAge have determined that today’s compensation scale with which new executives have to measure is:
• Ability to generate losses from $1 billion to $10 billion — average managerial skill.
• For losses from $10 billion to $25 billion –– median managerial talent.
• Losses from $25 billion and above –– top-notch executives, highly in demand at studios, financial institutions and automobile manufacturers.
