The Obscenity that Defines American Banking Hits My Town
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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How sad. Ethics should be a requirement in business school.
Well done Mr. Reagan.
Rated
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.
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.
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.
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
Great post.
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.
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.
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.
Capitalism is the worst system in the world, cept for all the others...indeed.
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?
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
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!
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.
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.
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.
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.
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.
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.
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.
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.
http://www.boston.com/news/local/massachusetts/articles/2009/03/12/a_head_with_a_heart/?s_campaign=yahoo
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.
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.
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!
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.
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.
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.
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?
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
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?!
Thumbed.
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.