Europe takes aim at CEO bonuses
French President Nicolas Sarkozy has declared war on corporate barons who fire thousands of employees, drive firms into the ground and walk away from the ruins with multimillion-dollar bonuses. He has plenty of company in Europe.
In response to the global economic crisis, Sarkozy has called Western European leaders together for a summit meeting here today aimed at overhauling the financial system. In France, a spokesman says legislation to ban golden parachutes will go to Parliament within weeks, fulfilling a campaign promise Sarkozy made last year.
European leaders did not wait until the current global crisis to confront the problem of runaway executive compensation. The image of American chief executives pocketing giant bonuses regardless of the damage they inflict on their companies and the economy only reaffirms disdain for what the French call “Anglo-Saxon neoliberal capitalism.” They pronounce the phrase with a scorn comparable to John Steinbeck’s description in “The Grapes of Wrath” of business as “curious ritualized thievery.”
Sarkozy has a reputation as atypically pro-American among the French because of his emphasis on free markets and hard work.
But in recent years, he and fellow Europeans across the ideological spectrum have expressed hostility to the surging incomes of corporate bosses. The Dutch finance minister has proposed a “fat cat” tax increase of 30% on bonus and severance pay. The prime minister of Luxembourg, Jean-Claude Juncker, has condemned excessive pay as a “social scourge.”
“There has been too much abuse, too many scandals,” Sarkozy said last week during a nationally televised speech. “So either professionals agree on acceptable practices, or we will fix the problem with a law before the end of the year. . . . Executives should not receive free shares. Their compensation should be indexed to the real economic performance of their company. These executives should not aspire to a golden parachute if they have made mistakes or put their enterprise in difficulty.”
Even France’s confederation of business enterprises got on the bandwagon. Its president, Laurence Parisot, said the group’s ethics committee would “recommend the suppression of golden parachutes” to restore responsibility to the corporate boardroom.
For better or for worse, rejection of the U.S. economic model remains entrenched in France and other countries with a more state-driven, social-democrat approach.
“Being capitalist is an insult in France,” said Marc Touati, director of Global Equities, a consulting firm here. “In the USA taking risks can be rewarding; people are aware of the risks, but they know it can be rewarding. In Europe we are very dogmatic; we are afraid of risks.”
European executives make less than their American counterparts. A 2005 study by the Economic Policy Institute, a Washington think tank, showed that U.S. bosses made 39 times more than the average factory worker. In contrast, French CEOs made 23 times more and the ratio in Spain was 17 to 1.
“Sometimes in the past when you had mergers with U.S. and European companies, there was a big difference in executives of each company,” said Vicente Cunat, an expert at the London School of Economics. “The gap has been closing.”
The gap has closed fastest in Britain, where executives make an average 32 times more than factory workers. But as fear grips London’s financial district, the backlash intensifies.
“Most of us find it nauseating to think of the billions of pounds in bonuses pocketed by bankers whose toxic mortgage products blew up the financial system,” wrote Tracy Corrigan, a veteran financial commentator for the Daily Telegraph. “I have endured hundreds of hours of listening to investment bankers argue for “rationalization” (job cuts) or “consolidation” (job cuts) or “cost controls” (pay cuts and job cuts) in industries other than their own, ruthlessly applying a logic which seems to elude them when it comes to negotiating their own bonuses.”
Nonetheless, Corrigan praised British Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling, the government’s top finance official, for resisting a Sarkozy-like impulse to legislate caps on bosses’ pay. She described such regulation as an ineffective “blunt instrument.”
Brown and Darling have criticized the bonus culture, but have resisted calls from trade unions for direct action. And some observers maintain that there is too much whining going on.
“I’m not sure there’s really an issue beyond the one that less well-off people don’t like seeing well-off people doing well,” said Philip Booth of the Institute of Economic Affairs in London.
Touati, the Parisian analyst, questioned whether the French president’s crusade would make a difference in the end.
“The populist reaction to the crisis is to say: ‘Let’s blame it on the stupid, mean capitalists,’ ” Touati said. “In France . . . sometimes it’s even worse than in the U.S. It’s worse because of the caste system they all belong to. The boards distribute golden parachutes to CEOs they see as their friends, or members of the same caste. It’s never transparent.
“As long as it is friendship that is rewarded rather than real performance, restricting laws will not change the heart of the problem.”
Times staff writers Maria de Cristofaro in Rome, Christian Retzlaff in Berlin and Janet Stobart in London contributed to this report.