The Hog Wallow
Cockburn, Alexander, The Nation
When did the great executive stock option hog wallow really start? You can go back to the deregulatory push under Carter in the late 1970s, then move into the Reagan '80s, when corporate purchases of shares really took off with the leveraged buyouts and mergermania, assisted by tax laws that favored capital gains over stockholder dividends and allowed corporations to write off interest payments entirely.
Between 1983 and 1990, 72.5 percent of net US equity purchases were bought by nonfinancial corporations. At the end of this spree the debt-laden corporations withdrew to their tents for three years of necessary restraint and repose, until in 1994 they roared into action once more, plunging themselves into debt to finance their share purchases. This was the start of the options game.
Between 1994 and 1998 nonfinancial companies began to load themselves up with yet more debt. The annual value of the repurchases quadrupled, testimony to the most hectic sustained orgy of self-aggrandizement by an executive class in the history of capitalism.
For these and ensuing reflections and specific figures, I'm mostly indebted to Robert Brenner's prescient The Boom and the Bubble, published this spring with impeccable timing by Verso; also Robin Blackburn's long-awaited book (now being released by Verso) on the past and future of pensions, Banking on Death.
Why did these chief executive officers, chief financial officers and boards of directors choose to burden their companies with debt? Since stock prices were going up, companies needing money could have raised funds by issuing shares rather than borrowing money to buy shares back.
Top corporate officers stood to make vast killings on their options, and by the unstinting efforts of legislators such as Senator Joe Lieberman, they were spared the inconvenience of having to report to stockholders the cost of these same options. Enlightened legislators had also been thoughtful enough to rewrite the tax laws in such a manner that the cost of issuing stock options could be deducted from company income.
It's fun these days to read all the jubilant punditeers who favor the Democrats now lashing Bush and Cheney for the way they made their fortunes while repining the glories of the Clinton boom, when the dollar was mighty and the middle classes gazed into their 401(k) nest eggs with the devotion of Volpone eyeing his trove. "Good morning to the day; and, next, my gold:/Open the shrine, that I may see my saint."
Bush and Cheney deserve the punishment. But when it comes to political parties, the seaminess is seamless. The Clinton boom was lofted in large part by the helium of bubble accountancy.
By the end of 1999 average annual pay of CEOs at 362 of America's largest corporations had swollen to $12.4 million, six times more than what it was in 1990. The top option payout was to Charles Wang, boss of Computer Associates International, who got $650 million in restricted shares, towering far above Ken Lay's scrawny salary of $5. …