Last week, John Thain, the former CEO of Merrill Lynch was sacked by the CEO of Bank of America, which recently absorbed the bankrupt brokerage firm. Thain is a prime example of the mind-boggling greed, incompetence and cluelessness of the captains of the U.S. financial services sector. I called attention to Thain in my September blog on CEO pay, where I noted that Thain was the highest paid CEO in 2007, with compensation exceeding $83 million. This was a year in which Merrill Lynch lost $7.8 billion, mind you. Granted, Thain didn’t take over Merrill until November of 2007. But 2008 was even worse. Merrill’s losses of $27 billion last year was what led to its absorption by Bank of America.
But Thain’s greed and arrogance gets even worse. He apparently demanded a bonus of $30-40 million for 2008, the year he presided over the company’s bankruptcy and collapse. This was after Merrill had already received some $10 billion from U.S. taxpayers as part of the federal government’s financial bailout. Furthermore, according to a story in the Financial Times, Merrill granted some $4 billion in bonuses to other executives in the company, just before the Bank of America takeover was finalized. As the Financial Times observers, “this was money that appeared to come directly from US government funds.”
A New York Times story says that Thain spent $1.2 million to redecorate his Merrill Lynch office last year, including an $87,000 rug and a $68,000 credenza.
John Thain stands out as the worst abuser of corporate and government funds. But the problem is much wider than John Thain or Merrill Lynch, and extends across the entire corporate landscape. In my earlier post on CEO pay (and in my book), I point out that these huge CEO compensations in the U.S. are horribly inflated, both by historical standards and in comparison to other capitalist countries. In the 1980s, average CEO pay in the U.S. was about 50 times that of average worker pay. In Germany, Canada, and Japan, the ratio is less than 25 to 1. In the United States in recent years, on the other hand, that ratio has approached 500 to 1.
Thain is out, thank goodness. New York Attorney General Andrew Cuomo is investigating the bonus payments in Merrill Lynch. There is some accountability there, at least. U.S. representatives and taxpayers should make sure, though, that U.S. citizens do not subsidize the lavish lifestyles and obscene salaries of executives in companies that are receiving taxpayer money. Most of them are multimillionaires already. If they truly want to help the economy and the country (as most of them say they do), let them live on an average worker’s salary for a few years.