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Excessive CEO Pay and Job Losses: Are They Linked?

By Carl M. Cannon - November 5, 2011

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Atop the list, of course, was Viacom chieftain Philippe Dauman, who was given $84.5 million last year, after inking a new contract that included a generous signing bonus in the form of stock options. But the pay of CBS’ corporate head, Leslie Moonves, was upped by one-third to $57 million in 2010, according to the Equilar study. At the same time, the network of Edward R. Murrow was tightening its belt in the news division, laying off 90 staffers in Washington, Los Angeles and London and shuttering its Moscow bureau. More layoffs are believed to be in the works.

This kind of thing has become routine among large corporations during the Obama presidency. The week he was inaugurated, IBM chief Samuel J. Palmisano (2010 pay: $31.7 million, a 30 percent increase over 2009) sent an email to the staff vowing that Big Blue wasn’t retrenching, and added, “We will invest in our people.”

The next day, however, 1,400 IBM employees in North America were told their jobs would be gone in a month. This action seems to have heralded an unfortunate trend: mass layoffs done stealthily. By March 2009, IBM had laid off nearly 10,000 workers without making a public announcement.

One criticism of the Occupy Wall Street rallies is that the list of demands range from the abstruse to the absurd. The truth is these marchers don’t pretend to know exactly how to fix this economy. But they have come to believe that corporate capitalism is a rigged game run by “the 1 percent” who are getting frightfully rich at the expense of everyone else -- and who can blame them?

So far, President Obama has only stuck his toe into this rhetorical pool, preferring to concentrate on raising taxes on “millionaires and billionaires” and focusing his aim on “corporate jets,” not corporate leaders. For his trouble, the president has been characterized as weak-kneed by some liberals and blamed by conservatives for launching “class warfare.”

But Obama’s focus on corporate jets was a good instinct. A recent report by a firm called GovernanceMetrics International reveals that extravagant use of corporate jets really is a pretty good barometer of a poorly run company. Profligate flying also corresponds, not surprisingly, to sky-high executive pay.

“If you’re looking for a red flag to provoke a wider look at a company's governance and accounting practices, unusually high corporate jet perks is usually a pretty good one,” the GMI report states.

As for class warfare, it’s worth asking who is more responsible for today’s state of affairs: The corporate honcho who pays himself tens of millions of dollars while putting workers on the street by the thousands -- or those who take to the street in protest.

Famed management guru Peter F. Drucker predicted it might come to this. In his 1973 book, “Management: Tasks, Responsibilities, Practices,” he wrote: “The fact is that in modern society there is no other leadership group but managers. If the managers of our major institutions, and especially of business, do not take responsibility for the common good, no one else can or will.”

It was during the Reagan years that Drucker began warning of the danger huge corporate salaries posed to an organization’s morale. His rule of thumb was that a CEO should not pay himself more than 20 times what the average workers were earning -- and that this was especially salient in a time of layoffs. And in an interview with Wired magazine some 15 years ago, he amplified on this point:

“What’s absolutely unforgivable is the financial benefit top management people get for laying off people,” Drucker said. There’s no excuse for it. No justification. No explanation. This is morally and socially unforgivable, and we'll pay a very nasty price.” 

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Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

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