Procopius

Procopius
Location
Rockford, Illinois, USA
Birthday
February 05
Bio
I'm a regular middle aged guy, living in a regular middle class neighborhood, in a regular middle-sized community in the middle of America. I am an expatriate Texan transplanted to the Midwest, and wondering how I got here, and where I'm headed.

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Salon.com
Editor’s Pick
MARCH 18, 2009 11:44AM

The Obscenity that Defines American Banking Hits My Town

Rate: 36 Flag

Living in a fairly small city in the American heartland, I could at least take some comfort that the insatiable greed and irresponsibility that has brought such damage to our nation’s economy was limited, I thought, to the financial bigwigs in New York and San Francisco, and 100 miles down I-90 in Chicago.  The executives in those cities, receiving their multi-million dollar bonuses despite their companies’ colossal economic hemorrhaging, were a different breed from those in my own town who act responsibly and continue to be a part of the community.

Boy, am I naïve.

The largest bank in Rockford, Illinois, is Amcore Bank.  Its operations are mostly limited to Northern Illinois and Southern Wisconsin.  By national standards, it is quite small, with about $4 billion in deposits.  Citibank, by comparison, has deposits of $826 billion.  During 2008, Amcore lost $97.8 million due to the rapidly rising rate of failed loans.  Again, this is pretty small compared to massive losses at AIG or Citi, but significant for a regional institution the size of Amcore.

How does a relatively small bank respond to a loss like this?  Here is what Amcore does:

·         Freeze wages for the company’s 1300 employees.

·         Eliminate the 3% company contribution to employee retirement plans

·         Provide a $1.2 million bonus to the company’s top 5 executives.

Yes, you read that correctly.  While freezing wages and eliminating retirement benefits for hourly and salaried employees, the company’s top 5 executives will receive, on average, a bonus of $240,000.  This is just the bonus, not the standard rate of pay.  The CEO of Amcore, William McManaman, will receive a $500,000 bonus.

Granted, this amount pales in comparison to the tens of millions of dollars paid out to a modern-day robber baron like James Dimon,  the CEO of JPMorgan Chase.  But I can also assure you that a bonus of $500,000 goes a very long way in a small city like Rockford.

Did William McManaman deserve his $500,000 bonus?  The numbers speak for themselves.  The company lost nearly $100 million last year.  In early 2008, Amcore’s stock traded at $21 per share.  Today, you can purchase a share of Amcore for $1.51.

William McManaman is illustrative of a major problem with American business.  Mr. McManaman came to Amcore in February, 2008.  Prior to that, he spent two years as Executive Vice President and CFO at Ubiquity Brands, a maker of snack foods.  Prior to that, he spent two years as Senior VP and CFO at First Health Group.  Prior to that, he spent 3 three years as Executive VP and CFO at Aurora Foods.  In this decade, William McManaman has been a senior executive at four different companies, and has remained with a single company no longer than three years.

When executives simply move from one company to another, their vision is understandably short-sighted.  They are excellent at maximizing their own compensation, but have no incentive to oversee the long-term success of the enterprise.  That is bad enough for the companies they lead, but it can be disastrous for the communities that rely on the long-term health of their leading employers.  While new blood can bring fresh and invigorating ideas to a stagnant company, it does little good to bring in new management if those managers know in advance that they will likely leave in two or three years.  Their incentive is to maximize short-term gains at the expense of long-term viability.  Only after they are long gone is it possible to judge whether their ideas have been a benefit, or a disaster, to the corporation and its community.

 

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I know there are ethical financial executives out there. But they are getting harder and harder to find.
Ridiculous idea, I suppose, but THERE SHOULD BE GOVERNMENT REGULATION OF BONUSES. Bonuses, in the ordinary world, are something given for good performance, individual or by the company that is shared. To cut contributions to retirement plans AT THE SAME TIME as paying 'bonuses' is obscene.
Wow. Like you I assumed (wrongly and naively) that smaller community banks wouldn't have these problems because the executives would be concerned about the community. If they are job hoppers though, I guess they don't care about the community.

How sad. Ethics should be a requirement in business school.
Steve, it's been a few decades now of hearing how executive pay and performance need major reform, yet here is another excellent example of what's wrong in this country with so many companies. Don't these executives have any shame? Apparently not.
Just a few moments ago I had the TV on for the Congressional BS on AIG--listening to some first-rate A-hole defend the bonuses. It literally turns my stomach over. But as long as information continues to surface and the economy continues to stall, the backlash creates a better system within which banks will be forced to operate--If we want it.
Yeah Steve, we just need more and more deregulation of the system huh?! The trickle down these people felt (like all of us) is a dripping of urine on tops of our heads as we're pissed upon by the greedy.
Well done Mr. Reagan.
Rated
I read your other article about banks and I am very sorry that Amcore bank got the robber baron memo.

I was particularly amused by this line in the other article:

I suppose I really shouldn't be too critical of JP Morgan's CEO, James Dimon.

By all means, feel free to poke at him all you want. Dimon was forced to live in my neck of the woods when he was president of Bank One (where he was known as "Jim Dim"). From day one, his missions were to become president or CEO of some big ol' bank, and get back to New York. To that end he organized the sale of Bank One, which was in pretty good financial shape then, to Chase on the proviso he got to be CEO of the whole shooting match.

He and most of those CEOs are absolutely pathetic. They simply cannot function outside of their very narrow comfort zones, usually in some old financial city, even for a few years. Dimon in particular felt that only money and status mattered (no, really, he did) and practically had a nervous breakdown when surrounded by people who kinda expected him to be a leader, not a peacock.

I would hazard a guess that your bank might have drunk the same koolaid which is why I hold out no hope whatsoever for the recovery of the banking system. They don't get what went wrong, and will do things the same old way until someone literally bans them from banking altogether and we know that ain't gonna happen.

I hear gold is a good investment, and sleeping on a pillow stuffed with money feels pretty good.
Myriad, I personally don't think the gov't needs to get involved with bonus regulation. but there may be room for laws to change the way boards of directors are chosen. I think a lot of the problems we have now are attributable to the lack of accountability within the "good ol' boys" network that constitutes the boards of directors.

Kaysong, compensation plans all too rarely incorporate ethics. As for the smaller community banks, yes, in general they have acted far more responsibly than the macrobanks. It is no surprise that the leadership of the largest bank in my town are the ones that have proven to resemble most closely the robber barons. Apparently, that is what they aspire to be.

John, apparently not, indeed.

gw, I thought about watching the hearings, but I don't want to vomit.

blue, I don't hear a whole lot of cries for further deregulation anymore!

flyover, Mr. Dimon could stop working today, and never work another day in his life, and he would still live EXTREMELY well off of his earnings from last year alone. It is truly obscene, and in conflict with the American work ethic.
Procopius -- Great subject mater and well written post on a depressing subject. Who is on the board of the bank? They are at fault for agreeing to such ridiculous compensation.
Executive bloodsuckers -- a new career path.
What so many of us non-banking civilians fail to grasp is that none of what happened was the fault of the Executives! They deserve the bonuses because they did their jobs! How could they have predicted what was going to happen? All they did was oversee the largest pyramid scheme in history.
Yes, I know this is a gross-over-simplification, but for pete's sake how the hell else can I wrap my head around what I see? It was debt piled on top of debt with a serving of debt for dessert. .Now 98% of the population is paying for the bad decisions of less than 2% of the population. And that minority still doesn't get it.
Will somebody in this country stand up and admit to something? Bush? Cheney? Bank of America? The guy at the gym who won't shut up with his opinions? Fox News and their new martyrdom fever? The crazy liberals who obviously are at fault for everything including whale over-population? AIG? Someone, please just stand the fuck up and say "I caused this, here is the money back. I will shop at Wal Mart and eat discount store-brand foods for the rest of my life because I was a greedy thief."
If you do this almost all of the world's major religions will guarantee your admittance to Heaven. Some religions will throw in a few virgins as an incentive.
I should mention at this time that I deal in historic comic books for a living and that I do a lot of local theatre so reality hasn't exactly been one of my specialties. While a good three quarters of my life has passed, I am planning on coming back next time as a ninja who can see through walls and has a power ring which gives me the ability to fly.
What we are overlooking:
I'm beginning to think that the
"obscene bonus" issue is a clever diversionary sortie , led by Mr. Liddy, with the objective of distracting people from a more important issue: AIG, and I assume others, seems to have been paying off "Toxic" (near worthless) Assets" with the taxpayers money at pretty much "top" , that is to say, vastly inflated, prices, to the great benefit of all Mr. Liddy's friends and associates. While not a great fan of the "Free" market, I have been having some difficulty figuring how these assets could be evaluated, in the absence of at least some kind of market. So the Wall st. geniuses have simply accepted the markets valuations at a pre crash level.(!?) Did I miss something here? This is a lot more important than a measly few billion in useless bonuses. disigny
What if we taxed those bonuses at 100 percent? The rage is palpable today. There is a lust for someone to go down over this.

Great post.
Talking about obscene, the shocking pay rates of top USA executives has been that way since the Reagan years, and most American workers have seen spending power drop since the late 70s.

Only now when the structure is crashing are people waking up to these inequities that the lack of regulation has spawned, as the 'invisible hand' of the free market worked its magic.

Those who voted for administrations that condoned and encouraged these abuses are reaping what they sowed. Unfortunately those who didn't vote for those administrations are doing it too.

Hopefully this will be a wake up call for those citizens who don't make well over six figures that their only power is their ballot.
I don't believe that these "bonuses" or obscene salaries actually have much to do with money. I think they are more like status symbols -- kind of like getting a window office or having a big desk. They are one of the badges worn by the executive class, a sign that they are superior to the rest of us -- regardless of what value they actually bring to a company.

Other sectors of the economy seem to function well without such bonuses. About a year ago I read that Gen. David Petraeus makes around $180K per year -- surely enough for a comfortable life, but a fraction of the bonus of the job-hopping bank executive of whom you have written.
sheepdog, the boards are, I think, the heart of the problem. It's a little self-serving and self-perpetuating clique.

Ms. Peel, it's a very lucrative career path as well!

Mark, I think our current economic situation is perfect fodder for an imaginative comic book writer!

Shawn, in about 5 or 10 years I suspect there will be some very illuminating information published about the corruption that is still raging in Big Finance.

Zuma, in the case of AIG there is a very real possibility of 100% excise tax on these bonuses. Mr. Liddy seems to think this would be a bad thing, resulting in mass resignations. That kind of makes me yawn. As incredible as it may seem to him and his colleagues, there may actually be some managers on the next lower rung of the ladder who are perfectly capable, and may even be happy with an income of less than a million dollars. Imagine that.
ooooooooooooh my god.

Capitalism is the worst system in the world, cept for all the others...indeed.
a society that relies on ethics is founded on lies. ethics are valuable, but must be supported by publicity and retribution.

there is no reason to conduct public business in secret, save fear that the public would be outraged by the truth. if this bank had to report to the local newspaper that they were writing contracts like this, they might not do it.

of course, in a socialist democracy, these sorts of things wouldn't happen in the first place.

incidentally, not all bonuses are keyed to performance, some are tied to longevity. and if you are convinced capitalism is wonderful, why all the fuss about someone maximizing his wealth?
Kind of boggles the mind that a guy who spends a mere two years, max. three, at these companies as a top dog even gets hired. WTF

The average person interviews for a job at Safeway and they act like you're the devil incarnate if your job longevity is less than 4 or 5 years.

This is all so hypocritical and wrong.

It really is a club amongst the HAVE A LOTS and we are naive to ever imagine that basic rules of right and wrong apply to anyone but ourselves. WTF
I get angrier every day! Furthermore, I hereby call for an uprising amongst the citizenry. Until the citizens of this land is your land enjoy health benefits/insurance equal to or exceeding those that the members of Congress enjoy, we cease paying TAXES.
gibbyonce, I hope your last sentence turns out to be prophetic.

mishima, you make a good point. Really, what does anyone need with a $10 million salary other than to say to his peers, "Look at what I got!"

persephone, well said.

al, you are correct about bonuses being tied to longevity, and in the case of Amcore, they are, in fact, retention bonuses. But retention of one or two years doesn't mean very much. I have no problem with large bonuses based on performance. I have huge problems with large bonuses paid to a small cadre of executives, while those who work for them get laid off or reduced compensation and benefits.

Ablonde, it's CEO musical chairs, where the directors simply shift around to different companies. It's also incestuous. BTW, you better change your avatar name to "Thoreau" after your tax comment!
The damage to smaller communities seems more personal and long-term when people come and go without caring.
To paraphrase Machiavelli: Greed corrupts. Absolute greed corrupts absolutely. The more of it there is on high, the more of it there is below. I think Monte's post speaks to that. There are some of us who are more innocent victims, but in a way, I know I bought into the hope that things would stay moving forward, when I should have know better.
Procopius,

You know of which you speak but I have already done. The Olympic Peninsula is MY Walden pond. I fail in the overall mission because I cannot abandon internet access.

Some serious civil disobedience is long overdue in America.
yeah, Procopius, these guys browse through the economy like goats in a vegetable patch, taking the best and moving on, leaving each company they touch poorer than it was when they got there, it's legal grand theft and since they all serve on the same boards they just keep hiring each other while the rest of us suckers have to actually produce something to earn our meager bread
p.s. what shawn disney said
This has been going on for decades in one form or another with pay and benefit cuts to employees in production or service while executives receive huge bonuses and run companies into the ground. While Nike was paying Michael Jordan hundreds of millions of dollars to promote their sneakers, they were making said sneakers overseas in sweat shops. It's about time this kind of thing gets some attention.
Just a quick question for you.

Did any of you care about these "obscene bonuses" when your stocks were going up 10-15 percent a year? Did you care about them when your house was jumping 30 percent in value?

I have no problem with people getting a lot of money when they generate big profits. The only problem I have is with them not taking a bath on the downside.

I don't think there's any regulation that can be written that would prevent people from getting fat bonuses -- obscene ones, even.

And before you go off on a rant about these bonuses, ask yourself one thing.

If someone wanted to give you millions of dollars even though you knew you did a bad job, would you turn it down?

I wouldn't. I'd take the money and run.
Not only should bonuses be capped or rescinded (or in current circumstances, clawed back in taxes) for executives of Arrogant, Incompetent & Greedy corporations, so should the exorbitant salaries paid to such individuals. I've heard the specious claim that they need these salaries to live in upscale cities. Do all the employees get same consideration? I think not.

My experience of parachute in&out managers is that their notions tend to be half-baked and don't often stand the test of time. Definitely NOT worth the high price tag for all concerned.

Time for some radical changes to corporation law. imo.
It is nice to see some anger and disappointment. And rightfully so. It has taken people of US far too long to react to inadequacies, and corrupt systems that breed inequality and exploitation, such as shown in your example.

The corporate world has been sucking us dry. It serves noone, except for the ones on the very top. It is time for us to realize that in order to make the world a better place, we cannot be only complacent cogs in a capitalist machine, awaiting "leadership" to rescue us from ourselves.
Lea, yes, greed is corrupting. Or at least it confirms what was already corrupt.

Roy, good analogy.

latethink, it's been going on far too long. Thanks for commenting.

erika, maybe the reason they need such huge compensation to live in their upscale cities is because their huge compensation has made possible the high cost of living there!

Irma, the anger seems to be getting louder and louder...

Tony, I agree, I would take a huge bonus and paycheck if offered. The problem is with the boards of directors that allow these huge paychecks. And the recipients of the huge paychecks are on other boards where they authorize huge paychecks to those who authorized their own. That is the incest that has caused this mess.

And many of us absolutely did not benefit from the housing bubble. On the contrary, all that did for me was cause my real estate tax to go through the roof. I neither sold nor bought during the bubble, but continued to live in the affordable house I have owned for 15 years. Basically, however, I think we are in agreement. If the company had performed well, then bonuses would be perfectly acceptable -- as long as all of the employees received them. But to get bonuses when 1300 employees are seeing cuts is an outrage.
How does the bank justify a wage freeze for the majority and a wage bonanza for 5?

I'm sure they think that they 'are' the bank, in their very important role of setting strategy etc. Maybe all the employees should start saying "fuck you" to every customer. I guess they'd find out pretty quick how the bank really runs.
Tony, that's a spurious argument. I wouldn't turn down money offered to me, but that's not really the issue here. The issue is those in charge of running the bank are freezing/reducing compensation for the 'little people' that work the bank while handsomely rewarding themselves. How can that be justified? How is that demonstrating good leadership?
Thank you for this post.
There is a huge ethics problem in American bidness, and not just in banking. I've seen the exact same behavior in my industry - upper management parachutes in from past failed company, creates a huge mess, lays off 75% of the workforce, and subsequently gets promoted to the corner office in someplace nice, like Hawaii. (True story!)

However, this is not just a moral failure. The management merry-go-round creates instability for everyone. I'd wager it has also created an entire generation of middle and upper management that can't think beyond the next quarter or bonus cycle. Long term planning and actually growing a business are apparently for schmucks and are as old-fashioned as soda fountains.

What kind of economy is that? What kind of society does that economy create? Now we know.

We WILL be overtaken by societies and economies that know how to do more than post a quarterly profit if we don't get our act together.

PS - to Tony, no, if I ran my company into the ground, I personally could not live with myself if I took a huge bonus I didn't deserve. Maybe it's that "ethics" thing.
In the mountain of news stories about CEO's bad behaviors that we have been exposed to lately, I was happy to find one the other morning that gave me hope. I was so touched by the approach Paul Levy, CEO of Beth Israel Medical Center has taken that I ended up posting a blog about it. You don't need to read my blog, just read the Boston Globe article linked below. OEsheepdog commented that he has met Paul Levy and that he is everything the article says he is. He's not a banker but they could learn a few things from him about ethics.

http://www.boston.com/news/local/massachusetts/articles/2009/03/12/a_head_with_a_heart/?s_campaign=yahoo
Sandra, that would be interesting, wouldn't it?

CP, even before this current mess, it has always seemed to me that Wall Street puts far too much emphasis on quarterly reports. You are correct, that emphasis drives short term behavior and can be quite harmful in the long term.

mamoore, thank you for bringing up Mr. Levy. We as a nation, or better still, we in the richest countries of the world, need to make sure we are recognizing the ethical giants when we can find them -- the heroes of the business world who achieve great things for their companies, for their employees, and for the communities in which they operate.
I wonder if salaries and bonuses were commensurate with consciousness, who would be laughing all the way to the bank today? How and when did lack of consciousness escape so many and reward so few?
REALLY bad PR for this bank. Didn't they learn anything from watching the big guys get into trouble?
cartouche, a question for the ages.

merwoman, these guys are tone deaf. The local paper had a big article on just this topic today, with the names and photos of the recipients of the bonuses, as well as their other compensation. I can assure you, all of them were able to live EXTREMELY well without the additional hundreds of thousands they received.
You all need to start thinking like the creeps that run these banks. So what everyone else is struggling to make ends meet. These executives have run their banks in the ground yet they are rewarded for their hard work and dedication. These deserve every penny they are getting, even though they have failed.

I like to liken the bank executives to some of my students. Many of the students in the high school I teach in never seem to have enough credits to graduate, but miraculously they leave the school. It seems like America(ns) like to reward failure.

Rated because obviously we are in the wrong industry!
Thanks Olga. You make a good point. I'm going to go kick my dog, now.
Jim Sinegal, the CEO and founder of Costco, only takes home about $450K a year. He has about a billion dollars in stock options, but he goes to work every day and tries to visit each warehouse once a year. (There are over 500 of them, and he's in his early 70s, I think.)

And Costco is ALWAYS getting in hot water on Wall Street because they pay their people well and provide great benefits. I know from experience that even their construction projects are required to pay 90% of prevailing wage for all trades.

Good company, good CEO, and an example to the boobs in "finance."

Oh, and I heard this morning on Stephanie Miller that JP Morgan Chase is taking 400M of TARP money to move some of their IT operations OVERSEAS. To "streamline" their operations. Which is a WS euphemism for "grease the skids toward the bigwig's bank accounts", I'm pretty sure.
CP, it is great to hear another story like the one you have passed on about Costco's Jim Sinegal. On the other hand, the more I hear about JPMorgan Chase's leadership, the more disgusted I get.
Fascinating.
It seems like the bonuses have hit a hot button with the American public, in a way that few other things have lately. A real, (and justified), focal point for our pain and anger.
Well, at least we have finally stopped talking about Paris and Britney. Sad that it took an economic disaster of epic proportions.
Sheri, with a little luck, the boards of directors are noticing the hot button, and will respond appropriately. Unfortunately, I'm skeptical.

Zoetina, many more stories like this one, and I'm afraid there are a lot more to come, we'll be longing for the days when Britney and Paris were the big newsmakers for the day.
.5% bonus for every dollar lost. It's a brave new world.
Of course it's piss poor leadership to shaft the rank and file and pat yourself on the back with a big bonus while you're doing it.

But there really isn't anything that can be done about it. Check out the board of directors of any company you own stock in. Look at all the former execs of companies or people who sit on four different boards. It is incestuous and it will continue to be until shareholders say enough of this crap and vote them out.

But shareholder anger is starting to cause companies to change.

B of A, for example, has a management supported proposal for shareholders to provide an advisory vote on compensation for top execs. Maybe this is the reason why their execs who get their compensation disclosed will not be getting any bonuses this year?
I share your outrage -- and I've been complaining for as long as I've lived about the horrible inequity in "the economic system that is the envy of the world". Ah -- no, it's not, in many parts of the world, our economic system is considered the enemy of the world.

As if Old-Style Capitalism in which execs received obscene bonuses for success wasn't bad enough, now we have New Style Capitalism in which execs receive obscene bonuses for failure. Obviously you have inspired a new post from me, but in the meantime let me suggest a root cause for this problem: Unmasking Myths
Their incentive is to maximize short-term gains at the expense of long-term viability"

Hi Steve:
I have come to the conclusion that until the definition of a corporation is redefined to include measures to ensure a reasonable level of social responsibility, we will continue to have these problems.

A corporation is created solely for its money-making and tax-sheltering properties. With no legal liability for its owners and minimal regulation, all ethical considerations for running a good business and taking care of employees, customers and the community at large must come from within. Indivduals within American corporations have thrived in a socio-political climate that allowed too much freedom to rob and plunder with no consequences There is not too much in place to enforce or encourage a self-policing with regard to greed and corruption in large corporations.

The time has come for change as we uncover the root of the problem. Corporate law and the resulting corporate structure must be changed to reward not just short-term profit, but long term goals of running a good business that includes socially responsible behavior. In result, the accompanying corporate employee contracts will reflect a compensation structure with a view to maintaining the business for the long run, with less focus on the quarterly reports...

And, yes, this problem is all pervasive in the banking industry -- scary, isn't it?!
God, I am just so pissed off! ARRRGGG!

Thumbed.
Procopius

Like you, I'm fed up with the greed of corporate executives. It seems as though either the financial world has suddenly gone mad or that their greed is catching up with you and I and the rest of the working world. Sadly, I think the latter is probably the case.

I become infuriated every time i see or hear about bailout woes. Had the U.S. government enforced all the laws on the books created during and after the Great Depression, those monopolistic monsters that have found their way into our economy wouldn't exist. The corrupt and obscenely greedy corporate executives wouldn't have had iron clad contracts wherein they receive absurdly gigantic bonuses regardless of the stability of the companies they were hired to "guide."

I fear this has all grown to such giant ball of rubber twine that when one piece is cut, the entire ball becomes an uncontrollable exploding ball of ruin.
I want to thank you all for your comments. It seems this issue strikes a very emotional chord with an awful lot of readers. As well it should. One can hope that the message is being received by those who need to hear it. If not, there will be a day of reckoning one day that we all should fear, no matter what side of the economic divide you live in. The greed and inequity of the current system is not sustainable.