CEOs Paid to Crash (WSJ) - 30 Apr 2011

As the portfolios of ordinary shareholders imploded
in the second stock-market crash of the 21st century, CEOs looked up
from the smoke and ashes and breathed a collective sigh of, "Hey, you
know what? It's a buying opportunity."

By AL LEWIS

Only CEOs don't have to buy. They get their crony boards to award them stock options.

More than 90% of the CEOs of companies in the Standard & Poor's
500-stock index loaded up with stocks or options in the grim, uncertain
months between October 2008 and September 2009. And the value of this
largely free equity has since grown by more than $3 billion, according
to an analysis of S&P data published by The Wall Street Journal last
week.

The crash allowed our fearless corporate leaders to bet on a scary
market at an extremely low price with no risk to themselves. And since
the market had crashed so hard, and stock was so cheap, they were able
to bag larger numbers of options and shares as well.

Spin the wheel and wherever it lands, the boss is a winner again.

That's because when stocks crash, CEOs get new stocks.

This time, Washington put up taxpayer stimulus money. The Federal
Reserve flooded the banking system with trillions of dollars. And
interest rates went to zero. Bailing out the economy killed returns on
savings accounts, but it pushed the Dow Jones Industrial Average from
the 6500s to the 12500s. And the rising tide sure floated CEOs' boats.

How is it that the cost of everything in a corporation has to be
constantly justified, except for the cost of the CEO? The market was in
the tank. Millions of jobs would be annihilated. Why did CEOs deserve
more equity? Retention pay? As if the crash had proved that they were
worth retaining?

Stock options are supposed to align CEO pay with shareholder value.
But here, CEOs essentially got paid for a market crash and a
government-led recovery.

Many S&P 500 CEOs were handsomely rewarded simply because their share prices recovered to 2006 levels. Or not. Take Capital One Financial. Its stock traded in the $80s in 2006, fell to the $8s in 2009, and now trades in the $50s.

CEO Richard D. Fairbank's gain for this performance was $34.5 million. Next

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