Right out of college I went to work for a conservative flour milling company from Minnesota. The frugal president, Phil Pillsbury, a descendant of the founding family, took a reported salary of only $35,000 a year. That was modest for the head of a blue chip company, but his stock dividends kept him living high off the cake. Would you believe he kept his salary low to form an iron-clad ceiling? Every one of his employees was scaled down from there.
My commodities trading unit within the overseas division in New York was on a negotiated incentive plan with progressive bonuses for higher than anticipated revenues. Pillsbury thought our profit center could never achieve our target, but we worked hard to produce exceptional revenues in the early '50s and exceeded our goals. On paper three of us each stood to earn more than the president, putting some cake on our plates too. I dreamed of a house, a new car. It seemed too good to be true, and it was.
The front office balked, saying it was a mistake and corporate counsel, a Mr. P. Sherman, delivered a hardball message. "No one should earn more than Phil. If you sue you can probably win, but you will never work for another major American corporation again." My enthusiasm for the job disappeared. There was only a shrunken pie despite the record numbers we produced, so I left for a situation with more predictable rewards, and a more enlightened management. Things have certainly evolved since then.
These days the gap in pay between the executive suite and the mailroom is infinitely greater. The CEO of JP Morgan Chase, Jamie Dimon, who has been touted as the "world's best banker," earns $200 a minute. Why, he deposits more in his account before lunch thanPillsbury did for the whole year. Imagine trying to have a relaxed chat with a guy like that always looking at his Rolex ticking away at three dollars a second. After one year it has ticked $23 million worth, and there are other CEO's out there whose watches tick even faster. You can say one thing about Dimon. Unlike Phil, he was not cheap with his associates.
Dimon paid his chief risk officer in London a princely $17 million a year, which means she earned more being blow-dried at the hairdresser than the average employee does in a whole month. Somehow, in a stunning miscalculation of risk, she concocted losses that could go up to $9 billion of the stockholders money. You can take that as proof that derivatives trading is difficult to understand. Is this the new alchemy, turning gold into dreck?
Her boss claimed to be unaware that his London unit engaged in "gambling." No, they don't use that word, but because of the inexact nature of securities hedges, that's what it is. Because banking has gotten out of hand, Uncle Sam wanted to know why, so the new poster boy of Wall Street put on a fresh shirt, went before a Congressional committee, and offered a clean shaven apology for the debacle.
He was suave, saying essentially, "I'm sorry, I wasn't aware, it won't happen again." It gets better. When asked whether his stratospheric pay would be subject to the mechanism called "clawback," he did what his subordinate was unable do. He hedged. My guess is that he will go unshorn while she, the scapegoat, is fined and fired. The New York Times reports she may have to forfeit her pay for the last two years. I dearly hope she has something put away.
Meanwhile let us take satisfaction in the fact legal justice has been done to Wall Street's biggest crook ever, the Ponzi artist Bernie Madoff who stole $63 billion of his investor's money. He sits in a federal prison without a nest egg, knowing that the only way he will ever leave jail is in a box. Others may follow him, as grave irregularities in the financial system are investigated and prosecuted.
- - -H.C. Klingman can be reached at email@example.com. His column will appear every other Friday.