Rewarding failure

I guess it's no wonder that Sarah Palin thinks "confidence" and arrogance are sufficient preparation for the second-highest office in the country. After all, the people who pay for political campaigns in this country are a perfect example of how competence is regarded as weakness, and failure of the spectacular kind is richly rewarded:

Merrill Lynch & Co. chief executive John Thain and two former Goldman Sachs Group Inc. colleagues he recruited may reap almost $200 million for their year running Merrill if they leave or are given lesser roles after Bank of America Corp. buys the brokerage.

Thain, who got a $15 million bonus when hired in December, stands to get an additional $11 million in accelerated stock payouts if he doesn't stay after the deal, compensation consultant Graef Crystal said.

Trading chief Thomas Montag, 51, who joined in August, may get $76 million, including bonus and accelerated awards. Strategy head Peter Kraus, 56, was given $95 million, including bonus and stock awards, to replace a Goldman package he had to forfeit, people familiar with the matter said.

Meanwhile, we haven't written about Washington Mutual yet. WaMu is now up for sale. The linked article says Federal regulators are looking to broker a deal, which means that if a buyer isn't found, we may become owners of a bank in addition to an insurance company -- anything to keep it from bankrupting the FDIC. But Wells Fargo, JPMorgan Chase, and HSBC Holdings are said to be interested.

So what kind of reward does WaMu's chief get for running his bank into the ground? Let's take a look, shall we? Check this out, from March of this year:

Washington Mutual (NYSE: WM), the nation's largest thrift institution, announced a new compensation plan Wednesday that would protect its top executives' annual bonuses. Specifically, performance targets used to evaluate executives' performance will be calculated without factoring in some of the damage mortgage losses and foreclosures have caused.

Remember all the fuss surrounding the mortgage market in the past year? When calculating the top execs' bonuses, just pretend it didn't happen.

You've got to be kidding me
Wait a minute. Is this the same Washington Mutual that:

• Slid 70% in the past year amid mortgage and foreclosure headaches?


• Canned 3,000 employees and shuttered 190 of its 336 loan centers last year, in the wake of an ugly real estate mess?


• Announced a $1.8 billion quarterly loss related to losses in its loan portfolio?

Yes, it is.

Please, enlighten me
Washington Mutual justified the plan by acknowledging the "challenging business environment and the need to evaluate performance across a wide range of factors." Apparently, that "wide range of factors" doesn't include evaluating management members whose jobs include ensuring the feasibility of the company's loan portfolio in the first place.

If any of us had the kind of poor job performance that these executives had, we'd be fired. But these guys get to create their own compensation packages, then amend them based on information that shareholders may not have yet, in order to protect their own multimillions.

Funny how John McCain was utterly silent on this until his poll numbers started to drop.

What's the going rate for destroying a company these days?

The conventional wisdom on corporate boards of directors is that top executives receive such high compensation packages because the competition for them is so fierce.

For a year in the late 1970s, I was a department manager in the women's accessories department at Bambergers, a Newark-based department store owned by Macy's. Those of you who live or lived in New Jersey may remember the people walking around with the fake white chrysanthemum pins -- that was me. The hot "gift item" that year, as it had been the year before, was Dearfoam bootie slippers. The year before, under another manager, my store had been the #1 store in Dearfoam bootie slippers, and I was expected to exceed those numbers. I had an outpost right next to the main door of the store, but only one. My stockroom was in the basement at the opposite end of the store, and the boxes of these things were stacked from the ceiling. I was expected, with almost no extra holiday staffing, to keep this outpost stocked enough with all sizes so that I could beat the prior year's numbers. I failed to do so, and shortly after the January inventory, I was fired. It was the only time in my life that I was ever fired for performance. To this day, I don't know if anyone else could have kept that damned outpost full of ugly bootie slippers. How much difference my failure to "beat the numbers" on five-dollar slippers made to the company's profits that year I have no idea. But the store went on, as did the entire chain, adopting the Macy's name in 1986. Most of the Bamberger's stores live on today as Macy's stores.

Most of the work I've done since then has been difficult to quantify in terms of dollars. I went on to the obligatory secretarial/administrative jobs after my "glamorous retail career" flamed out, and by pure luck ended up in IT. The IT jobs can be quanitified in terms of project completion, but it's difficult to put a dollar figure on what a static/news/information web site, or an intranet, or case report form screens for a contract that's already in, contributes to the health of the organization.

Top executives, like little 25-year-old me running around Bambergers with my flower pin, are supposedly accountable for the bottom line. But you'd never know it from looking at executive compensation in this country. I've written before about these pay packages and the golden parachutes given to ousted executives when they fail, usually spectacularly. But since I, like all of you, are now an owner of AIG, I thought it might be useful to take a look at what AIG has paid its CEO.

The company's current CEO, Robert Willumstad, has held the post only since June after a tenure at Citigroup (another troubled company), so it's difficult to blame him for the mess. But not unlike John McCain, who thinks that the answer to Wall Street's problems is to convene a commission to study them. Willumstad found himself caught short well in advance of his planned September 25 announcement of his plan to restore AIG's financial health. Details of Willumstad's severance package are not yet available, but he's...

...eligible for AIG's executive severance plan, which provided benefits based on salary and bonus levels, and continued vesting of some incentive awards and benefits.

I wouldn't sit up nights worrying about the future of Robert Willumstad. When he stepped down from the position of Chief Operating Officer at Citigroup, his severance package consisted of...

...incentive compensation for the first months of 2005, based on the company's full-year performance. Citigroup also will accelerate the vesting of shares worth about $6 million - 40 percent of a $15 million restricted stock retention award the company gave him in July 2003. He also will receive a car, driver and secretarial services through August 2006, unless he takes a new job before then, according to a filing with the Securities and Exchange Commission.

That's not a bad package for quitting a job voluntarily. Willumstad joined AIG in January 2006 when he was elected to the Board of Directors and became Board Chairman in November of that year. He assumed the CEO role when former CEO Martin Sullivan was ousted.

Sullivan received a $47 million severance package as reward for bringing AIG -- and the world financial markets -- to the brink of collapse, after receiving compensation worth $22.5 million in 2006 and a paltry $13.3 million in 2007 as the company started to unravel.

This is not a bad haul for being an utter failure. Most workers get fired long before their performance blows so spectacularly, and if we're lucky, we get too weeks' pay as severance.