Super-Sized Incentives: Behold and Beware

[marmar]

from Too Much: A Commentary on Excess and Inequality:



Super-Sized Incentives: Behold and Beware
Another celebrated American executive is creating economic havoc, this time in the auto industry. What makes ostensibly smart CEOs act so dumb? We explore how over-the-top rewards play out.

July 7, 2008

By Sam Pizzigati

Smart, talented, ambitious people have a lot to offer. They also expect a lot. They expect our society’s best and biggest rewards, and the bigger the reward, the harder they’ll work to grab it. That’s fine — to a point. We certainly do want to see our “best and brightest” putting out, contributing as much as they can to endeavors that create wealth and advance the common good.

But if the rewards our society offers the smart and talented become too big, the smart can tend to start doing dumb things. The more outrageously large the reward, the more outrageous the dumb — and socially damaging — behavior.

Smart societies understand this dynamic and work, through tax laws and cultural norms, to keep rewards within reason. Here in the United States, we used to have many such laws and norms. We no longer do. We have swept away the restraints that once kept our society’s rewards relatively reasonable.

And now we’re paying the price. Our smart and talented today regularly do dumb things — and cause great damage.

Our latest exhibit A: the career of Richard E. Dauch, Corporate America’s latest superstar executive turned scourge of the late great American middle class.

Dauch currently serves as the CEO of American Axle and Manufacturing, an auto parts giant carved out of General Motors 14 years ago. Late this past May, after threatening to outsource “all of our business to other locations around the world,” Dauch forced 3,600 striking workers at his company’s five original American plants to accept a contract that cuts wages from $28 an hour down to as low as $14.35 and slices the company’s U.S. workforce by half.

One month later, in June, Dauch pocketed his reward: a $8.5 million bonus from the American Axle board of directors for his “leadership role” in “the structural transformation achieved under our new labor agreements.”

Dauch has now collected, over the last decade, over $258 million in compensation from American Axle — and, in the process, tossed thousands of U.S. worker families out of the middle class. .....(more)

The complete piece is at: http://www.toomuchonline.org/articlenew2008/july7a.html