I read an interesting news story today. It had to do with the on-going saga of Bear Stearns and their debacle. It seems that while the executives were propping up their companies stock value with the scams from the sub prime mortgage loans, they themselves were taking in large amounts of money in forms of compensation and bonuses for the great job they were doing with the sub prime loans. Over five years, from 2002 through 2006, Chairman Cayne took home total compensation — salary, bonus, restricted stock, and stock options — worth a combined $156 million. Current CEO Schwartz made $141 million. Former Co-President Warren Spector, deposed after the hedge fund debacle, did the best of them all, reaping $168 million. From 2002 through 2005, Bear Stearns proxy statements show that Cayne and his lieutenants, Schwartz and Spector, took home bonuses of between $9 million and $12 million each.
And the executives weren't stupid. In 2006 they eliminated the nine metrics for bonuses and moved to basing them entirely on one measure — return on equity, a number easily met by Bear's executives once they were on the sub prime bandwagon. Cash bonuses jumped to more than $16 million for Cayne, Schwartz, and Spector in 2006. So, while they their compensation went up based on "good" performance, there are no clauses calling for the return of Bear executive bonuses if their previous performance was deemed bogus or their compensation does not get reduced based on bad performance. Cayne, Schwartz, and Spector will get to keep their money, a circumstance decried by the Corporate Library. "If you don't have callbacks," said Corporate Library's Nell Minow, "it perpetuates a musical-chairs culture where you hope your check clears before the music stops."
Who gets hurt? Bear's biggest shareholders. Money manager Barrow Hanley Mewhinney & Strauss, owner of 11.5 million shares, and investor Joe Lewis, with 11 million, can only smart over their enormous losses — and hope that the company winds up fetching more than $2 a share. But they don't care about the other people that will get hurt...the employees of Bear Stearns. Even though the employees owned about 1/3 of the outstanding shares, they never received anything close to the compensation packages the executives did. Everyone else will move forward and life will go on for them, but the employees that get laid off...they will need to figure out how they are going to live until they find another job. After all, they didn't make millions scamming the shareholders and others.
But if justice REALLY exists, all of the executives should have ALL of their wealth taken away (after all they acquired it through scams and deceit) and be forced to work at minimum paying jobs for the foreseeable future. Because after everything is said and done, they really don't care. They got theirs. They don't have to worry about being thrown out on the street. They don't need to worrying how they are going to put food on the table (how much better can the executives and their families eat with over $150 million?). I can't think of anything that could be bad enough to happen to those executives. But then they have enough money to buy whatever kind of justice they want.