Protesters hold signs behind Richard Fuld, Chairman and Chief Executive of Lehman Brothers Holdings, as he takes his seat to testify at a House Oversight and Government Reform Committee hearing on the causes and effects of the Lehman Brothers bankruptcy, on Capitol Hill in Washington, October 6, 2008. (Reuters/Jonathan Ernst)
One of the great American delusions is meritocracy—the idea that everyone competes on an even playing field, and then gets what they deserve. In a meritocratic society, we would expect top-earning chief executives to represent the best and the brightest. Or, at the very least, to be good at their jobs.
Consider the case of Richard Fuld, who ran Lehman Brothers from 1994 until 2008. Fuld made the list of America’s twenty-five highest-paid executives for eight years in a row, until the bank collapsed under a slew of bad investments. The Lehman bust was the largest bankruptcy in the nation’s history and a defining event in the financial crisis. For his leadership in the eight years prior to the collapse, while the firm was making bad bets and covering them up with accounting tricks, Fuld raked in more than $466 million.
Then there’s Vikram Pandit, former CEO of Citigroup. Pandit made the top-twenty-five list in 2008, earning $38 million. That same year, his firm laid off 75,000 employees, and took government bailouts ultimately exceeding $472 billion. Pandit accepted only $1 for his services while his firm was in the red, but by 2011 he was back on the list of top earners.
These cases of gross overcompensation for poor performance seem exceptional, but in fact they’re representatives of a trend. A twenty-year review released today by the Institute for Policy Studies found that the records of nearly 40 percent of America’s top-earning executives include leading their firms to bankruptcy, government bailouts, fraud-related fines and settlements, and their own firing.
(Source: Institute for Policy Studies)
“So many of the CEOs that wound up leading our economy to disaster showed up on the list [of America’s twenty-five highest-paid CEOs] both before and after the financial crisis,” said Sarah Anderson, one of the report’s authors and the director of the Global Economy Project at IPS. While the financial sector is heavily represented in the list of poorly performing, highly paid executives, women are noticeably absent. In two decades, only four broke into the top twenty-five.
More than a fifth of the highest-paid executives ran firms that either received taxpayer money or collapsed during the financial crisis. Another 14 percent of all top earners ultimately lost their jobs because they were fired, forced to retire, or their company went bankrupt. Then these CEOs walked away with severance packages averaging $47.7 million.
“The average worker is very lucky to get a small severance. To see that the average ‘golden parachute’ was worth forty-eight million [dollars] reinforces the belief that there is no accountability here,” Anderson said.