By Pam Martens and Russ Martens: June 5, 2018 ~
Sanford (Sandy) Weill
The Dodd-Frank financial reform legislation that was passed in 2010 required that publicly traded companies report publicly how much the CEO makes compared to the median salary of workers. The Securities and Exchange Commission, with its close ties to Wall Street, stonewalled for years in passing the final rule and had to be pressured and publicly embarrassed in open letters from members of Congress before it finally implemented the rule. As a result, eight years later, we are finally seeing the hard numbers that define CEO greed in America.
In May, Democratic Congressman Keith Ellison from Minnesota’s 5th District released a study on the new data that was being released. The study was titled “Rewarding or Hoarding: An Examination of Pay Ratios Revealed by Dodd-Frank.”
Among the key findings in the study were the following:
Two-thirds of the richest 1 percent of American households are headed by corporate executives;
CEO pay in the U.S. is excessive compared to other countries. Citing Bloomberg data, the study revealed that “the average U.S. CEO makes more than four times the average pay of a CEO abroad”;
The pay gap has exploded over the past half century. The report found that the average CEO to median worker pay ratio today is 339 to 1 versus in 1965 when the average CEO received only an average of 20 times the average worker’s pay;
Ellison’s study also found that in all but six companies sampled in its study, median employees “would need to work at least one 45-year career to earn what their CEO makes in a single year.” Ellison also cited the example of the median employee at PepsiCo who would need to work “for a full 45-year career (age 18 to 63) more than 14 full careers (650 years) to make what their CEO makes annually.”
We decided to take a look at the CEO to median worker pay ratios at some of Wall Street’s largest banks where greed has so famously run amok for the past quarter century. The AFL-CIO has conveniently compiled the data of companies that have reported, where it can be pulled up under the company’s name or stock symbol.
Citigroup’s CEO Michael Corbat registered a 369:1 ratio. JPMorgan Chase’s Jamie Dimon clocked in a close second at 364:1. Bank of New York Mellon’s CEO Gerald Hassell (who retired last year) came in at 345:1. Wells Fargo CEO Tim Sloan, who has battled a barrage of scandals at the bank, earned $17.6 million for 2017, according to the bank’s SEC filing, 291 times the median worker’s compensation.
Bank of America’s CEO Brian Moynihan is something of a surprise with a much lower 250:1 ratio while Morgan Stanley’s CEO James Gorman almost looks tame at 192:1. Goldman Sachs’ CEO Lloyd Blankfein (who famously bragged about his company doing “God’s work”) also surprised with a 163:1 ratio, the lowest in this group.
The problem with the pay ratio numbers is that when it comes to Wall Street, this methodology doesn’t at all capture what’s really going on in terms of the greed factor. Take, for example, how Sandy Weill, the former Chairman and CEO of Citigroup, magically used reloading stock option grants as the fast track to riches on the backs of the bank’s low-wage workers — then walked away as a billionaire two years before the bank imploded into a 99 cent stock, leaving shareholders destitute and 50,000 workers unemployed as the bank was forced to downsize in order to survive on the largest taxpayer bailout in U.S. history.
Weill’s stock riches grew out of what corporate compensation expert Graef “Bud” Crystal called the Count Dracula stock option plan – you simply could not kill it; not even with a silver bullet. Nor could you prosecute it because Citigroup’s Board of Directors was rubber-stamping it.
Weill’s stock option plan worked like this: every time he exercised one set of stock options, he got a reload of approximately the same amount of options, regardless of how many frauds the bank had been charged with during the year.
Writing for Bloomberg News, Crystal explained that between 1988 and 2002, Weill “received 96 different option grants” on an aggregate of $3 billion of stock. Crystal says “It’s a wonder that Weill had time to run the business, what with all his option grants and exercises. In the years 1996, 1997, 1998 and 2000, Weill exercised, and then received new option grants, a total of, respectively, 14, 20, 13 and 19 times.”
When Weill stepped down as CEO in 2003, he had amassed over $1 billion in compensation, the bulk of it coming from his reloading stock options. (He remained as Chairman of Citigroup until 2006.) With a birds eye view of Citigroup’s internal problems, Weill decided real estate looked like a better risk than Citigroup stock. Just one day after stepping down as CEO, Citigroup’s Board of Directors allowed Weill to sell back to the corporation 5.6 million shares of his stock for $264 million. This eliminated Weill’s risk that his big share sale would drive down his own share prices as he was selling. The Board negotiated the price at $47.14 for all of Weill’s shares.
To this day, Citigroup’s stock has never recovered to anywhere near the price that Weill got for his stock. As of yesterday’s close, the stock is 86 percent lower than where it traded when Weill stepped down as Chairman in April 2006. (Citigroup did a 1 for 10 reverse split on May 9, 2011, leaving shareholders with 1 share for each 10 shares previously held.)
Is Weill’s stock option history an aberration on Wall Street? Sadly, it may be one of the most egregious examples but stock options and Wall Street banks’ share prices are being manipulated through the ability of most Wall Street banks to operate their own unregulated quasi stock exchanges where they trade their own and each other’s stocks. Bank share prices are also being manipulated through tens of billions of dollars of stock buybacks, with the bank often taking on more corporate debt to do so.
As Nomi Prins reports in her new book, Collusion: How Central Bankers Rigged the World: “The Fed absolved itself of all responsibility for financial stability in the big bank landscape in June 2017 when it allowed thirty-four of the largest Wall Street banks, including the Big Six, to pass its stress tests. In turn, the banks took this opportunity to buy more of their own shares, elevating their stock prices rather than expanding their loan services for small businesses and Main Street customers.” Prins goes on to explain that this acquiescence by the Federal Reserve resulted in announcements that Wall Street banks planned “to buy back $92.8 billion of their own stock as a direct response to the Fed’s blessing,” effectively meaning that the Fed was “greenlighting legal manipulation of the stock market.”
No other CEOs in America, other than on Wall Street, sit atop companies that are allowed to issue buy and sell stock recommendations; trade their own shares in their own dark pools; and run their own private justice system that locks shut the nation’s courthouse doors and its disinfecting sunshine.
