The Executive Pay Cartel

The company that took over Don Blankenship’s organized crime organization in West Virgnia ran it into bankruptcy in less than five years. For workers, this has not worked out well:

Since then, Alpha has laid off some 4,000 workers and filed for Chapter 11. Post-Massey, it operated well over 100 active mines; now it has closed all but 50.

[…]

Sure enough, Alpha is going after health and life insurance benefits it promised retired employees. Specifically, according to its court filing, it is trying to rescind “certain unvested, non-pension welfare benefits (e.g., hospital, medical, prescription, surgical and life insurance) currently offered to certain of [Alpha’s] non-union retirees.” Some 4,580 non-union miners and spouses would lose benefits under the filing.

Yanking health insurance from any retiree is bad enough, but these are people who spent their working lives in highly unsafe conditions; many now suffer from black lung and other coal-related ailments.

Hey, if people with black lung disease wanted medical care, they should have pulled themselves up by their bootstraps and become 25-year-old Stanford-educated software developers! Their corporate betters can demonstrate how American meritocracy works:

Their usual pay is okay, I guess. The Casper Star Tribune reports:

Alpha CEO Kevin Crutchfield received $7.8 million in total compensation in 2014, financial filings show. Former President Paul Vining took home $4.5 million, the chief financial officer made $1.9 million and Executive Vice President Brian Sullivan earned $1.6 million.

But when you’ve bankrupted your company and now you have to immiserate old and sick people, you need more of a picker-upper — a little something extra.

So Alpha proposed to pay these executives bonuses that could in some cases more than double their salaries. Depending on the cost cutting achieved, the bonuses could reach up to $11.9 million.

Alpha argued that the money was necessary to provide incentives for executives to help the company restructure out of bankruptcy, incentives presumably not provided by their salaries or legal obligations.

(Alpha also gave executives substantial performance bonuses last year, even as they were piloting the company into bankruptcy. Not clear what those incentives were for.)

This is an extreme case, but it pretty much defines how the wealthy define incentives differently for themselves and for ordinary workers. For the latter, a middle-class salary will make them lazy and in any case is an unnecessary expense. For those at the top, a multi-million dollar salary isn’t enough incentive to do your job. Note, too, how contradictory ideas about responsibility seamlessly replace each other depending on what’s necessary to justify the looting of the workers and shareholders. When the company goes into bankruptcy less than a five years after you take it over, doesn’t that suggest that you’re massively incompetent and don’t even justify a six-figure salary, let alone a seven-figure one supplemented by performance bonuses(!)? Why no, because the market for coal collapsed, so ¯\_(ツ)_/¯, not our fault. But when it comes time to get de facto retention bonuses, these same people become absolutely indispensable supermen with irreplaceable skills. Obviously, Alpha’s executives can’t simultaneously by caretakers who preside over a company whose profits are determined almost entirely by factors beyond their control and people with unique skills the company absolutely cannot afford to lose and must be retained at any price, but whatever it takes. (Taibbi was particularly good on this point in the context of the AIG financial whiner.)

This line of thinking is hardly absent from my line of work. I guarantee that the guy proposing that faculty spots go to the lowest bidder wouldn’t apply that logic to the Board of Trustees, presidents, or provosts. The defense of less extreme versions of this dichotomy would be that the top-level administrators are simply irreplaceable and there is fierce competition for their services, which rarely holds up. Consider the new president of the University of Iowa. Not only did he have no credentials as a higher ed administrator, even his credentials as a business administrator were underwhelming. And yet, he will get $790 grand a year in salary and pension compensation alone. The idea that there was some kind of bidding war for the guy or that he had unique skills that had to be obtained at any price is absurd. Obscenely high salaries aren’t used to acquire extraordinary talent; they’re used to justify the salaries of the people doing the picking and to convince themselves that whoever they hire is really good. Nice racket if you can get into it.