Earlier this year, after two 737 MAX crashes killed 346 souls and led to a worldwide grounding of the important airplane, Boeing disclosed that Chief Executive Dennis Muilenburg had in 2018 been awarded annual compensation of $23.4 million, up from $18.5 million a year earlier.
As my colleague Dominic Gates reported, the securities filing showed that when exercises of stock options granted in previous years were factored in, Muilenburg actually received $30 million, up from $24 million a year earlier.
What if Muilenburg would have given back the annual compensation?
It would have been the right thing to do. Refusing the pay would have been mere decency.
But this isn’t how executive comp works in the United States.
Muilenburg and his peers are rewarded based on increasing revenue, profit and, especially, stock performance.
This is the result of the “shareholder value” movement, which began in conservative academia in the 1970s and became business orthodoxy in the 1980s. Maximizing shareholder value is the primary goal of publicly held corporations. Everything else is secondary, or doesn’t happen at all.
The idea that these companies also have responsibilities to “stakeholders” such as employees, vendors, communities and the public good — a good fight waged by Harvard’s Rosabeth Moss Kanter in the ‘80s — seems quaint today.
Additionally, these all-important shareholders are mostly not individuals who take their ownership seriously and are in for the long haul. They are institutions demanding a quick buck.
A 2013 Washington Post story explained the consequences well: “Together with new competition overseas, the pressure to respond to the short-term demands of Wall Street has paved the way for an economy in which companies are increasingly disconnected from the state of the nation, laying off workers in huge waves, keeping average wages low and threatening to move operations abroad in the face of regulations and taxes.”
Maintaining this status quo requires looting corporate treasuries, destroying the collective wealth and innovations it took a century to create, and aggravating inequality.
The imperial CEO is essential to maximizing shareholder value. Stock options are intended to yoke the bosses’ compensation to the company’s performance.
With a bull market, the raises that S&P 500 chief executives received last year meant many were making $1 million a month.
Executive compensation is often laughably disconnected from financial and stock performance. At its worst, the pay model has encouraged heedless risk-taking, accounting fraud and volatility.
Society has changed since the early 1950s. Back then, Charlie Wilson, head of General Motors, the largest company in the nation, was paid the equivalent of $5.8 million a year in today’s dollars. Last year, his successor Mary Barra pulled down $21.9 million.
Doing the right thing, the decent thing, having a sense of shame. Not anymore. Not among the imperial executive class. F. Scott was right about the rich being different.