Monday, December 03, 2012

ECONOMIC CRISIS: CEOS

US CEOs face uncertain times, & it's not just their companies that worry them

Tumultuous economic conditions in US and across the globe (including Japan, Italy & Germany) have forced leaders to face tough questions on their companies. More alarmingly, there are questions that also relate to themselves that need answers today. Do they really deserve to be the chieftains of the drivers of world economy? And most importantly, do they deserve humongous compensations for ruining, oops, running their companies?

There is another hammer coming their way after Sarbanes Oxley. The $700 billion federal bailout recently passed by the US Senate put light on executive pays various company heads were receiving. And responding to the protests and angst of investors and tax payers, Treasury Secretary Henry Paulson was forced to attach the Emergency Economic Stabilization Act 2008, to the bailout plan, which puts limits on the compensations that company heads have been getting for all this while. And now the top-honchos better watch out, for if they don’t perform, their compensations can definitely fall down. Add to this the backing and support from President-elect Barack Obama on the ‘Say-on-pay’ bill; top American corporate leaders have all the reasons to get jittery.

Let''s take the case of Citigroup. Vikram Pandit recently exploded by announcing a lay-off of 52,000 employees. Did Pandit have no other option in hand while dealing with the issue? Bart Narter, Senior VP, Banking Group, Celent told B&E, “Citi, faced with growing losses and declining confidence in the future of the bank, had few choices: take money from the government, shrink, cut dividends, cut heads, et al; their answer was all of the above.” Narter goes on to add, “(At the back of the economic downturn), compensation will go down at the top level and everywhere else too. It will be more closely tied to performance. Also stock options in a down market have little value.” Pundit, who currently draws a compensation of $250,000 along with other long term compensation of $323,813 (Business Week), is now facing the wrath of stake holders (see related story on Page 36). The question being asked is, "What is the point in getting such a hefty package if you cannot lead a company ably?"

Another perfect example of a leader who brought his company to the docks is Jerry Yang of Yahoo! (ironically also one of the founders). After cruelly crumbling the hopes of the company by failing to seal a deal with both Google and Microsoft, Yang, ''fazed'' by criticism, decided to step down. And during his reign at the online major, he drew a total compensation of $688,242 (Forbes). Such is the condition of Yahoo! that now that the Yang has quit the company, the board at Yahoo! will again go back to Microsoft, who will now lay its own terms and conditions.


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

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