At Delphi, Greed Is Good

    I'm not surprised when I read about corporate greed--it permeates every corner of the economy. What still makes me shake my head in wonder is the corporate greed that continues unabated at companies in distress. So, let's check out some truly obscene behavior at Delphi

    We've been following the travails of workers at Delphi for some time. You may recall that Delphi is asking that workers cut their pay from $25 an hour to $9 an hour because of the company's financial situation; the company filed for bankruptcy on October 8th and is trying to get court permission to dump its pensions and union contracts. A coalition of unions has formed to resist the cuts.

    This morning there is a terrific column by Gretchen Morgenson in the Sunday Business section of The New York Times. She starts out:

IT'S not every day that investors can view the contortions performed by compensation consultants trying to justify the monster executive pay packages that they recommend to corporate clients. And when these exercises in absurdity are done for executives asking for great sacrifices from workers, retirees, creditors and former shareholders because they manage a company in Chapter 11 bankruptcy protection, the entertainment is unmatched.

    And, then it gets more delicious from there. Turns out, surprise, that the executives have made sure that they are protected while workers bear the entire brunt of the company's financial crisis. And they do so without making any recognition that THEY may have been responsible for the company's demise. As Morgenson points out, the company has lost $6.3 billion in the last seven quarters and is being investigated by the Securities and Exchange Commission for its accounting practices. No matter, as Morgenson points out:

And how the money stacks up. The salaries first: even accounting for the pay cuts, the top four executives at Delphi, not counting Mr. Miller, would receive a total of $3.1 million a year.

Then come incentive bonuses, to be awarded by using a new and unimproved performance hurdle at the company: earnings before interest, taxes, depreciation, amortization and restructuring costs. Interesting to remove restructuring costs from the equation - it means that management no longer has an incentive to keep control of those expenses. "Shouldn't somebody be responsible for that, or is this supposed to be a feeding frenzy?" Mr. Foley asked.

It is impossible to determine what the performance goal is for Delphi executives hoping to earn their incentive bonuses. Under the terms of the plan, the company's compensation committee of the board has until year-end to set the hurdle rate. That seems like a detail the bankruptcy court may want to have as it ponders the package.

The incentive bonus program, to be divided among an unspecified number of Delphi executives, has an estimated cost of $21.5 million for the first six months, Watson Wyatt said. That amount equals the entire compensation paid for all of last year to Toyota's 33 top executives, a group that oversees a highly profitable company in the automotive business.

But wait, there's more. An additional $88 million in cash would go to Delphi's top 500 employees when it emerged from bankruptcy proceedings or if the company's assets were sold. The top four executives - again, excluding Mr. Miller - would receive a total of $8.9 million of this, or 10.1 percent.

"The cash part of the plan goes to the executives either on the effective date of a reorganization or on the sale of substantially all the assets," Mr. Foley pointed out. "But there is no floor on the sale of assets, so if they conduct a real fire sale, they still get the $88 million. Why is that a good deal for bondholders, retirees and workers?"

Then there is the stock to be handed to 600 managers after the reorganization is successful: 10 percent of the shares outstanding. Because some of this would be available for immediate sale after the reorganization, it resembles a gift more than an incentive plan, Mr. Foley said. I

n the illustration used by Watson Wyatt, the four high-ranking executives, plus a new chief executive, would together receive stock options worth $25 million and restricted shares worth $12.5 million. One-quarter of the restricted stock would vest immediately.

Add to this a severance program under which 21 officers would receive 18 months of salary and target bonuses, 89 senior managers would get a year of pay and target bonuses and 373 executives would receive a year's salary. If all of the executives were terminated and took their severance, the cost to Delphi would be $145.5 million, the filing estimated. If 30 percent left, the cost would be $30.5 million.

    Vile, astounding...use whatever word you can to express your outrage. Because outrage is appropriate (with kudos to Morgenson for doing a fine piece of journalism).

Comments

[Bill Pearson]

Truly a remarkable story and one that belies the message these huge corporations try and portray as they shove the cuts down workers throats. It is fascinating to read and listen to the power brokers as they justify the need for workers to accept massive concessions...and at the same time, feed at the trough.

We saw the exact same thing during the Southern California grocery strike. Steve Burd was lamenting wal-marts arrival in CA and stressing how workers must make the sacrifice; at the same time he and his management team were taking record earnings home with stock options and salary increases.

This story exists time and time again, and should/could be the basis for the rebirth of a real labor movement. What the hell are you waiting for boys, it's sitting there on a platter.