I've spent half a century writing for radio and print (mostly print). I hope to be still tapping the keys as I take my last breath.
Working people get fired for small transgressions, often without compensation. But when chief executives foul up and threaten the survival of their companies, they walk away with massive paycheques.
Hiring the Best
Peter Drucker wrote dozens of books on corporate management. In his view, the correct ratio of chief executive pay to that of the average worker was about 20-to-1. That’s where it stood in the mid-1960s.
A lot has changed. Here’s the Economic Policy Institute: The CEO-to-average-worker-pay-ratio “peaked at 368-to-1 in 2000. In 2018, the ratio was 278-to-1, slightly down from 281-to-1 in 2017—but still far higher than at any point in the 1960s, 1970s, 1980s, or 1990s . . . In contrast, wages for the typical worker grew by just 11.9%” between 1978 and 2018.
In 2018, the average CEO of the biggest 350 companies in the United States was paid $17.2 million.
Corporate boards justify paying executives such large amounts of money as a way of attracting the best talent. Here, then, is a review of some of these highly talented people and the golden parachutes they received for messing up.
John Sculley at Apple
In May 1983, Steve Jobs lured John Sculley away from PepsiCo for the trifling salary, in today’s terms, of $1 million. Steve Jobs, the co-founder of Apple is reported to have said to Sculley “Do you want to sell sugared water for the rest of your life? Or, do you want to come with me and change the world?”
Sculley might have been a whiz at selling pop, but he knew little to nothing about digital technology. It turned out that Jobs and Sculley had a monumental personality clash that led to Steve Jobs leaving the company in 1985.
CEO Magazine notes that John Sculley “made a number of shaky product decisions, including launching the Apple Newton and moving into the camera and CD player businesses.” He also signed a disastrous licensing arrangement with Bill Gates that allowed Microsoft to become the dominant player in the desktop computer business.
Profits nose-dived and, by June 1993, John Sculley was gone. Apple agreed to severance pay, stock options, and a commitment to buy Sculley’s mansion and his Lear jet. Ka-ching: $10 million. Not the best investment.
Fred Goodwin and the Royal Bank of Scotland
Hundreds of thousands of people took huge financial hits in the 2008 banking crisis, but Fred Goodwin, one of the people who caused the catastrophe was not one of them.
Goodwin became CEO of the bank in January 2001 and embarked on an aggressive expansion program. There were mergers and acquisitions followed by deep staffing cuts that earned Goodwin the title “Fred the Shred.”
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Early success made him a man to watch. The Queen even knighted him for his services to banking. But, as with so many during the heady days at the start of the century, Sir Fred got greedy. As the first signs of the imminent banking collapse were showing in 2007, Goodwin bought the Dutch bank ABN Amro for $100 billion.
His appetite for gobbling up competitors gutted the Royal Bank of Scotland’s capital reserves. When Lehman Brothers folded in September 2008, it knocked over a lot of shaky bank dominoes, including the Royal Bank of Scotland.
Sir Fred’s reckless spending left the bank nothing to fall back on; its losses for 2008 were £24.1 billion ($32 billion), the biggest corporate loss in British history.
Goodwin resigned on an agreed pension of £703,000 ($903,000) a year. The house is still paying out the pension on the 61-year-old former banker: Ka-ching.
Roger Ailes and Fox News
By most accounts, Roger Ailes was not a nice man. The actor John Lithgow, who played Ailes in the movie Bombshell, describes him as a “villain . . . filled with shame.”
Broadcaster Christopher Ruddy says “Roger almost single-handedly built the number one TV network for cable news in the country, and he did it within three or four years.” Perhaps you don’t get to be successful in any realm of business by being nice.
Ailes was clearly very clever at manipulating audiences. He called Fox News “Fair and Balanced,” when it is the exact opposite. But, Ailes had a much darker side than just peddling marketing deceits. He was a serial abuser of women.
In July 2016, former Fox News anchor Gretchen Carlson accused Ailes of sexual harassment. Then, the floodgates opened and 22 other women came forward with similar accusations against Ailes. He was given an ultimatum to resign or be fired; he chose to resign and receive a $40 million severance cheque. Ka-ching.
Dennis Muilenburg and Boeing
When 346 people die because a wonky product is released to the marketplace, somebody has to suffer the consequences. In the case of Boeing’s 737 Max aircraft, that somebody is Dennis Muilenburg.
A life-long employee of Boeing, Muilenburg was in charge of the company when two 737 Max planes crashed. The circumstances of the crashes were similar and it became evident that the aircraft had a serious design flaw that was forcing it into calamitous dives.
Muilenburg played down the safety concerns and said just a bit of software upgrading and some more pilot training were needed to solve the issue. Later, it was revealed that some Boeing engineers and pilots knew there was a problem and alerted senior managers. As is so often the case with whistle-blowers, they were ignored and told to get with the team.
After the second crash, governments around the world ordered the grounding of all 737 Max aircraft until a fix was in place. Part of the damage control at Boeing was to get rid of Muilenburg, who had become the public face of this massive corporate disaster. He was sent into early retirement with a severance package of $62.2 million. Ka-ching. Ka-ching. Ka-ching.
- In 2012, Sir Fred Goodwin became simply Mr. Goodwin. The U.K. government stripped him of his knighthood, saying “The scale and the severity of the impact of his actions as chief executive officer of RBS made this an exceptional case.”
- According to a 2013 Texas A&M University study, CEOs can make a two to four percent increase in their companies’ performance. Of course, as we’ve seen, some of them can cause the value of their businesses to have a catastrophic decline.
- John Stumpf (CEO) and Carrie Tolstedt (Head of Community Banking) at Wells Fargo were allowed to resign in 2016 over the fraudulent creation of more than two million customer accounts. The company’s Board of Directors clawed back $60 million dollars in payments to the two executives. The New York Times reported, “The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation.”
- “CEO Compensation Has Grown 940% Since 1978.”Lawrence Mishel and Julia Wolfe, Economic Policy Institute, August 14, 2019.
- “How Much Does Luck Affect a CEO’s Performance? More Than You Think.” Will Yakowicz, Inc.,November 17, 2015.
- “Lessons from History’s Worst CEOs.” Emma Wollacott, CEO Magazine, July 18, 2018.
- “25 People to Blame for the Financial Crisis.” Time Magazine, undated.
- “Roger Ailes, Founder of ‘Fox News,’ Dies At 77.” David Folkenflik, National Public Radio, May 18, 2017.
- “Boeing’s Fired CEO Could Walk away with a $60 Million Golden Parachute.” Jackie Wattles, CNN Business, December 24, 2019.
- “Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal.” Stacy Cowley, New York Times, September 27, 2016.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2020 Rupert Taylor