It's Theft -- and Should Be Outlawed

KWEISI MFUME

November 29, 1991|By KWEISI MFUME

WASHINGTON. — Washington -- The best social program is a job. It's also the best protection of taxpayer money. When a worker has a good job, he pays money into the federal Treasury instead of taking money out. And that fact alone obliges the federal government to protect the jobs of working Americans.

Well, the government may have to get more vigilant. Lots of employees have been thrown out of their jobs lately, cutting the tax base, and putting a strain on government assistance programs. And it's not just because of the recession; it's because of greedy management.

As a member of the House Banking, Finance and Urban Affairs Committee, I noted with interest the recent news story on General Dynamics. Chairman Bill Anders had recently pitched his stock to industry analysts, creating a $4 jump in the share price, and helping him meet an incentive clause that guaranteed him a $1.6 million bonus. Meanwhile, the bonus recipient was engineering a cost-cutting plan that eliminated 10,000 jobs and froze worker pay.

This news comes on the tail of Time Warner's announcement of 600 layoffs. The year before the layoffs, Time Warner's CEO took home a $74.9 million bonus on top of his $3.3 million salary. The CEO will defend himself by saying that his bonus was a result of a merger that triggered stock options and bonus plans -- and that's the second story. The Time Warner merger that brought an ungodly bonus to the CEO also saddled the company with billions of dollars in long term debt.

Of course, these companies employ clever accountants to explain that the layoffs are not a consequence of executive salaries and bonuses. But the fact remains that a few people got scandalously rich while others got fired.

This is a matter of national economic importance. When corporations lay off workers to cut costs created by inflated executive compensation, the federal government begins paying the workers' salary and benefits. And that amounts to a federal subsidy for the richest Americans.

Unfortunately, the structure of corporations invites this abuse by pitting shareholder interests against employee interests.

This is obvious in the case of a takeover. For Company A to take over Company B, it has to buy a controlling percentage of the stock. To do that, it has to pay a premium. If the stock is normally trading at $50 a share, it may have to pay up to $70 a share to induce people to sell. Since company A doesn't have the cash to do this, it borrows money to finance the takeover.

This gives shareholders and management fantastic windfalls, but leaves the company crippled with debt. That debt can drive the company out of business, drive it to Mexico or drive it to layoffs. In any scenario, a few people get rich, and a lot of people lose their jobs.

Even without takeovers, management is pitted against shareholders and employees. CEO salaries are set by boards of directors whose salaries in turn are set by CEOs. CEOs pay their directors (who are often CEOs themselves) up to $50,000 a year and more for what amounts to a few weeks of work, and the directors show their gratitude by voting the CEOs fat salaries and bonuses.

Shareholders, whose interests are entrusted to the directors, have no direct influence in CEO salary decisions. And employees, who are arguably more invested in the company than shareholders, have no say at all.

The obvious failing of this system is that it allows executives to get wealthy without creating wealth. In very few companies is executive pay tied to productivity. According to Business Week, in 1990 CEO compensation climbed 7 percent while corporate profits dropped 7 percent.

The trend is now so blatant that inside experts are adding their voices to complaints long registered by employees and economists. Many call for executive compensation to fall when corporate profits fall, though that has not been the practice. In xTC the Eighties, CEO pay increased 212 percent, while corporate profits increased 78 percent, and worker pay only 53 percent. One pay consultant says ''if the board doesn't get a hold of executive pay very quickly, I think the federal government will.''

We have a duty to. Corporations must develop a win-win-win arrangement among management, shareholders and employees that makes it impossible for one group to prosper by impoverishing another.

If they can't do that, the government must intervene, because when millionaire directors and CEOs award each other salaries and bonuses that cost employees their jobs, that's theft -- and

there ought to be a law against it.

Kweisi Mfume represents the 7th District of Maryland in the House of Representatives.

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