Further proof, if any were needed, that something has to be done about the compensation system in corporate America. From a Times article about the collapse of Washington Mutual, we read that Washington’s aggressive foray into the world of sub-prime mortgages was spearheaded by a go-getter chief executive, Kerry Killinger, who created a corporate culture that encouraged lending to anything that breathed.
….[P]ressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.
Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.
The ultimate supervisor at WaMu was Mr. Killinger, who joined the company in 1983 and became chief executive in 1990. He inherited a bank that was founded in 1889 and had survived the Depression and the savings and loan scandal of the 1980s.
An investment analyst by training, he was attuned to Wall Street’s hunger for growth. Between late 1996 and early 2002, he transformed WaMu into the nation’s sixth-largest bank through a series of acquisitions.
A crucial deal came in 1999, with the purchase of Long Beach Financial, a California lender specializing in subprime mortgages, loans extended to borrowers with troubled credit.
By the time shareholders joined WaMu for its annual meeting in Seattle last April, WaMu had posted a first-quarter loss of $1.14 billion and increased its loan loss reserve to $3.5 billion. Its stock had lost more than half its value in the previous two months. Anger was in the air.
Some shareholders were irate that Mr. Killinger and other executives were excluding mortgage losses from the computation of their bonuses. Others were enraged that WaMu turned down an $8-a-share takeover bid from JPMorgan.
Billions that investors had plowed into WaMu were wiped out, as were prospects for many of the bank’s 50,000 employees. But Mr. Killinger still had his millions, rankling laid-off workers and shareholders alike.
Read the whole article and decide for yourself whether any rational person could have believed that this house of cards wouldn’t collapse at some point. Killinger, the man most responsible, walked away with enough to live in the lap of luxury for the rest of his days, while destroying the company he was allegedly obligated to protect.
There is no way corporate America will stop this method of compensation that is drive solely by short term “profits”. It is simply too lucrative for the people involved, who now effectively control the corporations for which they work. Killinger made about $20 million dollars a year for running a scam. The president of Toyota makes about a million dollars a year-comfortable but chicken feed by comparison. We need a confiscatory income tax again-it is one very effective way to make corporate types feel that their futures are bound up with those of the shareholders they allegedly serve.
And speaking of serving shareholders, I was amused by this paragraph from the story:
JPMorgan Chase, which bought WaMu for $1.9 billion in September and received $25 billion a few weeks later as part of the taxpayer bailout of the financial services industry, declined to make former WaMu executives available for interviews.
Which means that these valuable executives, who did such great work at Washington Mutual, are still raking in big bucks at JPMorgan Chase, which by the way received $25 billion of our money shortly after it bought Washington Mutual.