Skimming the cream

Reading about Conrad Black, Ken Lay and assorted other CEOs allowing their greed to bring them into conflict with the law, one can't help but wonder why they do it when they can skim so much legally. A recent survey of the income of Canada's corporate elite released by The Globe and Mail illustrated the easy pickings available. In 2005, average CEO compensation for the 247 companies surveyed increased by 39 per cent to $4.3-million.

This handsome remuneration was, however, peanuts for the truly creative. For example, the winner of the CEO sweepstakes, Hank Swartout of Precision Drilling who received $75-million. Here's how he did it:

He converted his company to an income trust. This triggered a "change of control," allowing the old CEO (Hank B. Swartout) to collect a severance payment of $12.6-million as the new CEO (Hank B. Swartout) took over. He was also able to cash in his stock options which amounted to $55-million. He ceded the title of president to his son-in-law thus becoming eligible for a retirement allowance of $2.9-million. (He remains CEO and Chairman of the Board.) All this in addition to his salary. And, oh yes, he got to buy his $74,000 company car for a dollar.

If people like Swartout could in any way be considered to have earned this windfall it might be acceptable, but most of his 2005 bonanza was a result of corporate manipulation and, most importantly, soaring commodity stock prices which he had nothing to do with. Even if the increase in stock price was due to added value to his company, Precision Drilling isn't a one-man outfit. Other employees surely made a small contribution to its success.

CEOs receive these grossly disproportionate payouts by the generosity of boards of directors who all too often tend to be incestuous, self-perpetuating bodies made up of local management and presidents and chairmen of other companies, usually chaired and dominated by the CEO. As a result, corporate salaries incline to be the largesse of good old boys taking care of each other. To quote from an editorial in the very corporate Globe and Mail, "an enormous sense of entitlement sometimes overwhelms common sense -- and those old-fashioned values like duty, honour and respect."