It is a bizarre state of affairs where the person making most sense about executive excess is a convicted corporate criminal who was involved in the collapse of one of Australia’s largest insurers. In 2005, former FAI and HIH director, Rodney Adler, was sentenced to four and a half years prison for breaching his directors’ duties and disseminating false information. Adler was released two years later and has maintained a low profile since, with the exception of a few brief appearances in Crikey.
But while his reputation has been irrevocably damaged, Adler appears to have a better understanding about extreme capitalism and executive greed than most. In an interview with BRW, Adler noted that:
About 10 or 20 years ago executives on good salaries who hadn’t taken the risk, who hadn’t built the corporation, they said to themselves: “I’d like to be rich, I’d like to have equity in the company but I don’t want to buy it.” And a whole new set of instruments evolved out of America then infested the rest of the world, where executives became owners but with no risk.
Adler was presumably referring to the growth of equity instruments such as share options and performance rights (which are, in effect, a zero-price option). These instruments allowed executives to participate in any share price upside, but insulated them from any risk. Largely as a result of the widespread proliferation of equity instruments, CEO pay rocketed to 344 times average worker salaries.
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Of course, CEOs haven’t been the only ones to have benefited from the two-decade long equity boom. Warren Buffett’s famed ‘helpers’ have also looked after themselves extremely well. In fact, many investment bankers and hedge fund managers have made most CEOs look like relative paupers in recent years, largely due to extraordinary cash bonuses received.
Bloomberg reported earlier this week that Merrill Lynch, the investment bank which lost US$27 billion last year, paid its top investment banker, Andrea Orcel, remuneration of US$33.8 million (AUD$52 million) in 2008 (in total, Merrill paid its ten leading investment bankers US$209 million last year). Merrill Lynch was taken over by Bank of America earlier this year. Shortly after the acquisition, BoA was forced to accept a further US$20 billion from taxpayers due to unexpected losses from Merrill.
Orcel, who remains employed by BoA was recently appointed to “lead international corporate and investment banking and finance teams outside of the Americas.” It appears however that Orcel’s remuneration was not based on the quality of his advice. Last year, Orcel advised Royal Bank of Scotland on its disastrous acquisition of ABN Amro. The £61 billion takeover led to the near collapse of RBS and requiring the bank to be nationalized by the UK government.
It is a strange world which sees the straight talking Adler remaining in lifelong disgrace but many executives and bankers who caused far greater losses for shareholders remaining in anonymous and wealthy bliss.