CEOs “cashed out” prior to economic crisis

[JohnyCanuck]

By Tom Eley
28 November 2008

Balzac’s maxim that “behind every great fortune lies a great crime” may yet prove a fitting epitaph for American capitalism. A recent survey by the Wall Street Journal reveals that CEOs at major US financial and real estate firms converted tens of millions of dollars of overvalued stock into cash prior to the eruption of the current financial crisis, even as many of their corporations approached the precipice.

The Journal analyzed the fortunes of CEOs from 2003 to 2007 based on executive compensation and stock sale data. Fifteen of these CEOs took home more than $100 million in cash during this period. At the high end was Charles Schwab, who made over $816 million from his self-named accounting firm, almost all of it from stock sales.

Of the 120 publicly traded firms the Journal analyzed, CEOs cashed out a total of more than $21 billion. However, data was gathered only from publicly traded companies, and thus does not include similar fortunes that have been made by “hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.” Nor did it include data related to exit packages, the multimillion-dollar “golden parachutes” awarded to retiring or fired executives.

The Journal’s findings underscore the parasitism and criminality of the US financial elite. Defenders have long justified extravagant CEO pay by claiming that these were the talented “risk-takers” who generated enormous wealth for investors. But the Journal’s data shows that there is no correlation between compensation and a firm’s success. On the contrary, many CEOs rewarded themselves just as their corporations approached ruin.

http://www.wsws.org/articles/2008/nov2008/ceos-n28.shtml

[Scriptor Ignotus]

1. in this case i don't blame the players, i blame the game

if these CEOs, who we can assume to be somewhat financially savvy, sold their "overvalued" stocks then can we really call them criminals? The whole point of the stock market is to buy low and sell high, or in their case to sell personal stocks when they are overvalued. That's called "making a profit". CEOs or other insiders cannot and should not be chastised for that.

The rules of the game must be changed. Either by limiting CEO compensation to some multiple of the average worker or other means and altering the rules on when executives can exercise their stock options, we can limit the excesses we are seeing today. Seeing the CEO of Lehman Brothers pocket all that cash sure leaves a bad taste in my mouth, but I can't really blame the guy for doing what is in his best financial interest. Capitalism works when the right incentives are in place and fails when they are not.

If you are posting from the WSWS I'm sure you'll disagree, but I'd like to hear your thoughts.