Overpaid.

That Jamie Dimon got an $8M raise bringing his 2013 salary to $20M in the aftermath of JP Morgan’s shelling out billions to settle misdeeds is beside the point.  And that Dimon is charismatic or considered a star in the banking world is equally so.  Dimon is overpaid. Anyone who works, especially at a taxing job with considerable responsibility knows how hard that can be.  We understand that embedded in the idea of a career ladder is the expectation that the higher up we get, the more we will earn.  After all, the place relies on our leadership and the burden of performance is greater.  But $20M for a single year’s work — that’s about $55,000 a day assuming one works seven days a week, which we don’t.  Give us a break.

Dimon’s overly generous salary is hardly unique.  It actually pales in comparison with some of his fellow CEOs.  Before getting to that, I should note that because of the different ways companies report and analysts calculate (some include options, others don’t) it’s hard to get a consistent “apples to apples” handle on  compensation.  I am using and relying on listings compiled by Forbes Magazine and Bloomberg.  While some companies question their calculations (especially the treatment of stocks and options) both tabulations are well worth a look.  Check out the links.

Forbes, which closely follows the super-rich and super-compensated, listed McKesson’s John Hammergren as 2011’s top earner with a total take home of about $131M.  That’s right, $359K a day.  To be fair, without disputing the number, his company questions attributing all those earnings to a single year.  I won't get into that.  The important thing is that Forbes applies their methodology consistently.  Using it, they report that fifty-three other top executives were paid more than Dimon.  Interestingly, despite the conventional perception that Wall Streeters are raking in the most, drug and biotech CEOs actually take home 2.5 times as much as bankers.

To say that Mr. Dimon and his compatriots are overpaid is, in my view, a gross understatement.  Ask yourself, how much harder are they working than the multitude of women and men in their companies who come in daily, often putting in extra hours with no extra compensation?  Okay, Dimon may work harder than many and carry a heavier corporate burden, but $55,000 a day — more than most Americans earn in a year? Bloomberg may use a somewhat different methodology, but their calculation compares a CEO’s compensation with that of his/her company’s average wages.  Their listing is for 2012 when Hammergren’s take home seems to have fallen in to $40M ($110K at day), 733 times the McKesson’s average compensation of $54K.  This multiple calculation is revealing, often shocking.  Ron Johnson (whom JC Penny subsequently fired for poor performance) was earning highest take home of all company CEOs — 1,795 times more than Penny’s average employee.  Astounding.

And then there is the issue of pay raises, which have become so scarce or puny that we have generally seen wage stagnation.  In 2011, according to Forbes, “…the chief executives of the 500 biggest companies…got a collective pay raise of 16%...to $5.2 billion. This compares with a 3% pay raise for the average American worker.”  So not only are these executives earning many times more than employees, they are also getting much higher percentage pay raises.  You don’t have to be a genius mathematician to figure out that over the years this differential takes on a huge multiplier effect further exacerbating and widening income inequality.  These are important numbers because, while there is certainly a gap between the 1% and the poor, the overarching and crucial gap is between people at the top and the millions of working people below, often in the same companies.  Income inequality is stretching and often eliminating the middle class.  That touches virtually of us and in multiple ways.

Some people argue, and perhaps rightly so, that multibillion dollar fines imposed on Dimon’s bank notwithstanding, the government has not done enough to prosecute Wall Streets misdeeds.  But also true, and in some ways equally disturbing, is that bank directors have done little or nothing to hold upper management, especially CEOs, accountable.  If Washington is filled with lobbyists and office holders waiting to become lobbyists, and it is, management’s cronies generally populate and control corporate boards.  It is an incestuous relationship where the same directors sit on multiple boards and that includes CEOs.  It’s a buddy system. You sit on my board and I’ll be on yours. You watch my back and I’ll watch yours.  So, in what amounted to a gentle “slap on the wrist” for an arguably gross performance shortfall Dimon’s board reduced his 2012 pay to $12M (about $33K a day).  Wow, that really hurts!

Those 1-percenters, politicians and pundits who decry and classify talk of income inequality, as “class warfare” should be ashamed.  That anyone, for example, may question why (according to Bloomberg) CBS’s Les Moonves is making 1,111 times the salary of his company’s average employee, is not class warfare.  It’s looking at this glaring disparity and coming to the logical, and I’d argue objective, conclusion that there is something very wrong with this picture.  To put it bluntly, the compensation of many CEOs is an obscene manifestation of unfettered greed.  Don’t get me wrong.  CEOs should absolutely be making more than the average employee and even more than the senior executives on their team, but these numbers are simply and blatantly way out of any reasonable proportion.  It is hard to justify them and keep a straight face.

Of course, corporate directors and so-called compensation experts do justify them, which only shows how out of control and routine this money grab has become.  It seems that they, and those who have shrugged this inequity off as “just the way it is” have lost any and sense of values.  Shouldn’t there be some semblance of even-handedness in assessing an individual’s contribution and worth for a year’s work?  Again, I’m not suggesting that there shouldn’t be some premium, even a considerable but appropriate differential.  On Bloomberg’s charting of 250 CEOs pay ratios, William Sullivan of Agilent Technologies has the lowest, only 173x — $10M (27.4K a day) vs. employees averaging $58.6K.  Does that meet the smell test?

Calling our growing outrage about income inequality “class warfare” is a smokescreen.  If there is any war here, let’s be clear that it’s those at the top getting those huge payouts and their enablers who are well armed.  In a corporate setting, they hold all the cards.  They buy influence whether its the current PAC spending of the billionaire Koch brothers or the self-funding a Michael Bloomberg uses to thwart enacted term limits to gain an extra term as mayor of New York (not to mention the office itself).  They do what ordinary people — and that means most all of us — can’t.   Not only are they unwilling to let go, they fight tooth and nail to hold on, often with a good degree of arrogance.  Employees of their companies fear them and so do we.  Perhaps, like buying a lottery ticket, we don’t cry out because we hope, if they can do it, so can I.  But we know, or should know, for 99% of us that’s mostly an illusion.  It’s an American Dream that seems to be dimming with every passing year.

Singling out Jamie Dimon from a cohort that has collectively acted in much the same way — demanded and happily accepted more than their due — may seem unfair.  Don't' feel bad, I think he can handle the kitchen’s heat.  Dimon may be smart.  He may be well regarded on The Street, but he isn’t our hero and he certainly shouldn’t be our society’s role model.  American CEO’s may be doing good work, but I think they are grossly overpaid while most Americans are being left behind.

Restoration

As unbelievable as that may be (especially to me), I spent close to a decade on Wall Street.  No one was more ill suited, but much of my years there were spent working for Sanford I. Weill.  That made for an interesting time.  When I arrived, Sandy and three equal partners ran what was still a relatively small boutique brokerage.  They sat together in one large room, identical chairs and desks.  The message: no single top dog at Cogan, Berlin, Weill and Levitt.  The market dropped significantly on the day I arrived and never totally recovered during my tenure.  Took me a long time to take the hint.  It was a bear market but not for CBWL.  Beginning with its acquisition of the old line but tottering Hayden Stone, Sandy’s firm started on what would be a path toward phenomenal growth.  Within a relatively short time, Shearson Hayden Stone, as it became known, was an industry powerhouse and Sandy was its undisputed chief executive — What W would call, the decider.

I had left by the time Shearson was sold to American Express ultimately leading Sandy down a different and somewhat circuitous road.  It would ultimately put him at the top of the world’s largest financial supermarket, Citigroup.  In the final stretch of that journey, Sandy played an outsized role in convincing Bill Clinton and the Congress to overturn Glass-Steagall, the post Depression legislation separating commercial and investment banks.  The Gramm Leach Bliley Act enabled his Travelers Group to merge with Citi giving birth to the behemoth bank that we all now know would be too big to fail.

Fast forward to last week when the same Sandy Weill, who had retired from Citi shortly before Wall Street’s house of cards began to crumble, used an appearance on CNBC to advocate for what amounts to a reinstatement of Glass-Steagall.  While underreported, he had dropped a bombshell.  It would probably be too much to ask that Sandy fess up to being wrong in the 1990s — he simply says times have changed and what was right then is no longer.  One could judge him harshly for that, and rightly so, but he is just following the norm, a long line of business and political leaders who find themselves incapable of ever saying, I was wrong.  Indeed, Sandy has gotten a lot of flack about his change of heart including from Jon Stewart (called to my attention by Phyllis Prinz).

And hardly surprising, his biggest critics come from the community of which he has been a lead player.  These are the people who sit atop or benefit from today’s too big to fail banks.  Among them are those who have been raking in billions, some making their own trades with what may be customer money.  As far as I can tell, neither Bill Clinton nor his former Treasury Secretary Bob Rubin (who ended up in Citi’s executive suite), prime supporters of Gramm Leach Bliley, have reacted, certainly not publically.  Sad to say, what we can expect is that any real discussion about reinstating Glass-Steagall type controls might be conveniently deflected by a critique of Sandy Weill.  He is the perfect target.  Focusing on the messenger here, no matter what he did in the past, is to miss the point and more importantly, to miss an opportunity to do something.

You might say that Sandy Weill is being hypocritical.  That what we saw on CNBC was a self-serving rich guy trying to burnish his tarnished image.  You may be right, no let’s say you are right.  Feel better now?  Pointing that finger may give us some satisfaction, but we may find ourselves with nothing more than a hollow self-indulgent moral victory.  Not having talked to, much less seen, him in years, I have no way of knowing or being able to judge his motivations.  What can be said is that, considering what’s at stake, and the potential of being side tracked from the very real issue at hand, perhaps we should give him a pass, even if a conditional one. 

Aside from a chance and brief encounter in Zabars a few years ago, I haven’t talked to Sandy in years, but I knew him very well.  He was a man of considerable integrity.  He and his wife Joan have contributed millions to good causes from supporting hospitals to Carnegie Hall.  But what you should know is that he is one of the smartest and most thoughtful executives I have ever encountered, and there have been many.  As Hercule Poirot would say, Weill's grey cells were always working, usually at double speed and over time. 

Perhaps the terrible things that have happened in the aftermath of overturning Glass-Steagall were predictable.  A good number of Senators including Bryan Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Russ Feingold and Paul Wellstone opposed it.  But for a while the economy and business appeared (and I used that word intentionally) to be thriving.  Money was being made on both Wall Street and Main Street and no one, including John Q. Public, was asking questions.  Hear no problem, see no problem and for heaven’s sake, speak no problem.

Sandy is right; times have changed.  Oh, have they changed.  It isn’t only that the banks are too big to fail, but that they are too big to be either managed or supervised.  If Sandy’s protégée Jamie Dimon couldn’t spot a multi-billion dollar loss before it was too late, we know that to be the case.  Sandy was one to keep tabs on every dollar even as the dollars multiplied and one has to assume that Dimon was trained to do the same.  The problem is that, while companies may scale up, an individual human’s capacity has its limits — at some point it can’t keep up.  Of necessity, deciders these days rely on subordinates and are even unable to know what they are doing on a daily basis.

Breaking up the banks would likely be good for our financial system, but my guess is that it would also produce a lot of new jobs.  Economies of scale, the kind of thing that equity people like Mitt Romney tout, always involve consolidation of services and thus a loss of jobs.  The newly separated institutions would require their own infrastructures — specifically mandated to be separate. 

So, yes Sandy you didn’t apologize, and maybe you are trying to burnish your own tarnished reputation, but let’s give you the benefit of the doubt.  Of course making one comment in one TV appearance won’t be enough to say you are serious.   Taking a further risk to alienate your old pals and expose yourself to criticism will be required.  I hope your words won’t be ignored because further disasters lurk and too many people in your old business are acting as if nothing bad has already happened.  Business as usual doesn’t cut it.  No, business as usual is just plain frightening!