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[Gene GeRue <genegerue AT ruralize.com>]

William F. Buckley Jr.

April 20, 2005, 9:07 a.m.
Capitalism’s Boil
Some ugly details.

Every ten years I quote the same adage from the late Austrian analyst Willi 
Schlamm, and I hope that ten years from now someone will remember to quote 
it in my memory. It goes, "The trouble with socialism is socialism. The 
trouble with capitalism is capitalists." What brought this on this time 
around was the published recapitulation of executive plunder featuring, but 
hardly limited to, Viacom. The top three executives at Viacom received 
total compensation last year valued at about $52 to $56 million each in 
salary, bonus, and stock options.

We got, in one story of these goings-on — by Geraldine Fabrikant in the New 
York Times — a whiff of sobriety, as from someone hanging on to a tree limb 
in the landslide. Ms. Fabrikant quotes Brian Foley, "a longtime 
compensation specialist," and what he said was, "The compensation is beyond 
breathtaking." Viacom's share price, in the year of the gold rush for its 
managers, decreased by 18 percent.

We learn from Viacom's SEC filing that its chief executive, Sumner 
Redstone, who is 81 years old, is presumably guarding against the hazards 
of senior-citizen penury. His salary was $4.97 million, and he received a 
bonus of $16.5 million. We think we see traces of sibling rivalry in the 
picture, because one of Viacom's co-presidents, Tom Freston, received only 
$16 million in bonus. Viacom's other co-president, Leslie Moonves, has got 
to have done something truly humiliating, because his bonus was only $14 
million.

Why does capitalism tolerate such institutional embarrassments? The answer 
has to be that embarrassment simply isn't being felt. Consider 
excruciating, but apparently tolerable, incidentals. Mr. Freston is based 
in New York. But from time to time, business requires him to be in Los 
Angeles — where, as it happens, he also has a home. On those nights does he 
take hotel rooms? Ample hotel rooms, understand. No. He just charges the 
company what he thinks is appropriate to pay him for using his own home. In 
2004, this amounted to $43,000. He is evidently a man with simpler habits 
than the Los Angeles-based Mr. Moonves's. He does the same kind of thing, 
he has his own home in New York, but what he charged the company for the 
nights he spent in New York was $105,000.

Once again, there is a muted reproach from the corporate world, assessing 
this kind of thing. It is the voice of Graef Crystal, who is styled as "a 
longtime compensation expert." Mr. Crystal says of Sumner Redstone that he 
"certainly qualifies for the 'unclear on the concept award' contest for 
paying himself $55.9 million in a year when the company lost $17.5 billion."

Here and there efforts are being made to impose correlations of some sort 
between executives' compensation and stock performance. "The secret to 
linking pay to performance remains elusive," writes Claudia Deutsch of the 
New York Times. "Net income at Eli Lilly fell 29 percent and its return to 
shareholders dropped 17 percent last year, but its chief executive, Sidney 
Taurel, saw his pay go up 41 percent, to $12.5 million." There doesn't seem 
to be anything elusive about that: the boss aggrandizes.

One does have to allow, in the mind's eye, for the truly unique person. If 
Thomas A. Edison were alive today, his genius intact, it would be unwise to 
cavil at any arrangement whatever made by a company seeking his services 
exclusively. Bill Gates is not a genius on that order, though his gifts are 
complementary to Edison's — Gates knows how to exploit a technological 
epiphany.

Edison had the epiphanies, but was no good at all at exploiting them. 
Imagine if Gates had come up with the patent to the light bulb.

What dismays is the utter lack of class in such businesses and businessmen 
here parading their skills in distortion. Michael Eisner appears twice in 
the table of the 25 largest compensation packages paid in a single year. In 
1993 he took home $203 million. In 1998, $575.6 million.

That money was taken, directly, from company shareholders. But the loss, 
viewed on a larger scale, is a loss to the community of people who believe 
in the capitalist free-market system. Because extortions of that size tell 
us, really, that the market system is not working — in respect of executive 
remuneration. What is going on is phony. It is shoddy, it is contemptible, 
and it is philosophically blasphemous.

The compliant should consider founding a new company. Executive 
Remuneration Corp. The value of its shares to fluctuate according to the 
salaries and bonuses and stray benefits paid out to the managers of the top 
100 U.S. companies. The way things are going, stockholders would become 
rich in no time. And no high salaries would be needed for officers of 
Executive Remuneration Corp (ERC): just one man with a tabulator, adding up 
the salaries of the Eiseners for that year.

http://www.nationalreview.com/buckley/buckley.asp