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Washington Post Reports on How Top Execs at Bankrupt Companies Get Large Bonuses

Summary:
The Post had a nice piece reported on how the top executives of major companies that went into bankruptcy were able to get large bonuses. As the piece points out, the bonuses are not tied to performance outcomes, like getting the companies out of bankruptcy in a specific time frame. Of course, ordinary workers at these companies are not so lucky, with many being laid off with little or nothing by way of severance pay. While the piece does not make this point explicitly, these sorts of payouts to CEOs and top executives are hard to reconcile with a story where companies are being run to maximize shareholder value. They are more consistent with a story where CEOs are able to use their power to rip off the companies for which they work. This matters because the bloated pay of CEOs affects pay

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The Post had a nice piece reported on how the top executives of major companies that went into bankruptcy were able to get large bonuses. As the piece points out, the bonuses are not tied to performance outcomes, like getting the companies out of bankruptcy in a specific time frame. Of course, ordinary workers at these companies are not so lucky, with many being laid off with little or nothing by way of severance pay.

While the piece does not make this point explicitly, these sorts of payouts to CEOs and top executives are hard to reconcile with a story where companies are being run to maximize shareholder value. They are more consistent with a story where CEOs are able to use their power to rip off the companies for which they work.

This matters because the bloated pay of CEOs affects pay structures throughout the economy. When CEOs get $15 to $20 million, the CFOs and other top execs might get $10 to $12 million, and the third tier execs can get $1 to $3 million. This also leads to million dollar paychecks for top execs in nonprofits and universities. The world would be very different if we had the pay differentials from the 1960s and 1970s, in which case the CEOs would earn $2 to $3 million. And, the bloated pay at the top affects pay for everyone else, since fans of arithmetic know that more money for the top, means less money for those at the middle and the bottom.

If high CEO pay was associated with strong returns for shareholders, there would at least be a rationale for it, but as this and many other accounts indicate, this is not the case. Bloated CEO pay is simply corruption that generates inequality, and shareholders should be allies in stopping it.

The post Washington Post Reports on How Top Execs at Bankrupt Companies Get Large Bonuses appeared first on Center for Economic and Policy Research.

Dean Baker
I am a senior economist at the Center for Economic and Policy Research (@ceprdc). I also run the blog Beat the Press (@beat_the_press)

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