Is this the real life?
Is this just fantasy?
Caught in a landslide,
No escape from reality.
Open your eyes,
Look up to the skies and see,
I'm just a poor boy, I need no sympathy
This has been a great week for the merchants of hate that peddle politics of envy. Just look at the headlines:
* McKesson CEO lump sum retirement package worth $159.0 million
* CEO pay +37% since 2009 to $14.1 million or 273 times average worker pay
* Queen Elizabeth gets 5% pay raise to $58.0 million next year
Of course America's media is working too hard trying not to report the spat of scandals or trying to gloss them over to reach into their favorite bag of tricks. The thing is, while the knee-jerk thought would be the rich just get richer, there's a lot more to the story. Moreover, there are valuable lessons to the story that should inspire people rather than stoking to life one or more of the deadly sins. In other words, don't hate ... emulate.
In 1999 John Hammergren was elevated to co-CEO at McKesson (MCK) after it was revealed newly acquired HBOC, a medical software company, had been cooking the books. It was a major hit for the company, which lost $8.6 billion in market value on April 28, 1999, when the news broke. By 2001 Hammergren was sole CEO, and finally, in 2005, cut a deal to pay $960.0 million in cash to settle a class action lawsuit (the company had just $1.0 billion in cash on the books). The stock had been locked in a very tight trading range since collapsing a few years earlier, broke out through $40.00 on the news, and has barely looked back.
Needless to say, the company was in dire straits when the CEO job landed in Hammergren's lap. His moves not only saved the company, but these days few remember the scandal. I think Hammergren has earned $159.0 million, and I'm sure shareholders and the 44,000 employees would agree.
Keep in mind shares of MCK peaked at $90.00 in September 1990 and were changing hands at $65.00 when the scandal broke. The shares are now fetching $115 each. Consider during that period of corporate malfeasance, many large companies were embroiled in scandals. Most saw shareholders lose it all, including Lehman, Enron and WorldCom.
A Few other companies survived, but their share prices still haven't come all the way back:
Waste Management $56 April 1990 now $40.00
Tyco $235 Nov 2001 now $32
AIG $1,336 (split adjusted) now $44
RAD $48 Jan 1999 now $2.80
The Old Fashioned Way
I know we resist the notion that monarchs earn money. Generally, that's true, but the Queen of England and those that run the Crown Estate have done more than rest on their laurels and gene pool. That's exactly what's happened, and the payoff comes next year when Queen Elizabeth's income climbs to $58.0 million. This is because the Crown saw record profits on $12.3 billion valuation of land and other smart moves. There is now active asset management -it's paying off.
* St James Gateway
* Shopping Centers
* Golf Courses
* Ascot racecourse
* Wind Farms (Crown owns all UK seabirds)
The monarchy gave up its real estate in 1760 in return for annual payments which are now 15% of Crown Estate income. While the media is scaring you from owning things, even the Queen of England gets it; you own your future when you own assets.
Admittedly, I can't say it's easy to defend the average CEO earning 273 times the average worker. I will say, however, if anyone wants to address this the effort should go to make average worker pay higher and not to punish CEOs. This digresses a little, but can you guess when CEO to worker pay gap peaked? Yes, in 2000 just as all those accounting scandals came to a head. I really think it was a product of the era coming all the way from the top at the White House. It was a fun time in New York where most people hanging were spending money they didn't have. It was a ticking economic time bomb that blew up on President Bush just weeks into office.
That pay gap began to close since then but remains light years from the smallest difference of 20 to 1 back in 1965.
I agree with the line: Look up to the skies and see, I'm just a poor boy and I need no sympathy. I just need to push myself, forget the victimization stuff and once I get in the door make further sacrifices and investments so I can live like a queen later in life.