Economist Peter Morici, with whom I used to work many years ago at the Economic Strategy Institute, has sent out a superb note outlining the “self-dealing” among top executives at Delphi, which has just declared bankruptcy.
Delphi CEO Robert S. Miller is proposing a sweetheart severance packages for 21 top executives and improved compensation for 600 executives in the form of stock options.
This is a raid on bondholders and should be disallowed by the bankruptcy court.
These top managers bear considerable responsibility for Delphi’s sad situation. As experience in the airline industry demonstrates extra pay for failed managers will do little to improve their performance. There is no reason to believe, as Miller claims, these executives are being paid less than they are worth right now. In fact, they are likely not worth what they are currently being paid.
If his top executives are being paid below market, as Miller claims, why have they not left Delphi already? Over the last several months, Delphi’s top managers were in the best position to know the company was in deep trouble and that their future with the company was uncertain at best. Yet, they could not identify better employment alternatives?
Benchmarking against Delphi managers pay against other auto companies, suppliers and durable goods manufacturers is silly. Executive pay in the automobile sector, like blue collar pay, is more than the automobile and parts markets will bear. That is what matters.
When companies are in long-term decline, the shareholders would be best served by managers selling off assets and distributing the cash to the stockholders; rather, profitable assets are sold to sustain employment and above market salaries, and to keep uncompetitive activities going.
Consider Ford’s sale of Hertz and GM’s sale of its stake in Fiji. If you had a billion dollars to invest would you give it to Bill Ford or Rick Waggoner? Of course not! It follows that shareholders should not let them sell Hertz and Fuji and invest the money in Ford and GM, because they are not really investing. They are using the proceeds to support inefficient enterprises and overpaid managers and workers a bit longer.
The same goes for compensation packages at Delphi. The company has some residual value now that it is in Chapter 11. Ultimately, the extra pay for executives will come out of what goes to bond holders. That’s legalized pilfering.
This is a sizeable excerpt of a longer piece. I recommend that folks contact Peter Morici directly for his full note — and ask to be put on his distribution list.
Compare what Delphi’s CEO is doing for top executives compared to the lead graph, front page, above the fold, “Business and Finance” box in the Wall Street Journal:
DELPHI’S CEO SAID the auto supplier could save its pension plan if unions agreed to work for about a third of their old pay.
There are probably deep structural reasons why Delphi is struggling — but to reward those at the top who failed while workers struggle continues the story of outrageous ‘structural corruption’ in our economy.
— Steve Clemons