Here's a story which will provide fresh fuel for the nationwide Occupy Wall Street (OWS) movement. A CEO whose company was just acquired in a merger will obtain a golden parachute worth as much as $95 million for his departure, if he leaves within two years. And yes, he does plan to leave within two years in order to qualify for it.
On Sunday October 16th, 2011, Kinder Morgan acquired El Paso Corp. in a $21 billion deal to create the largest U.S. natural gas pipeline network. The deal includes $9.6 billion in equity and $11.5 billion of cash, offset by the assumption of $16.7 billion of debt. The New York Times provides some more background on Richard D. Kinder, who heads up Kinder Morgan.
El Paso Corp. CEO Douglas Foshee is set to walk away with a golden parachute totaling as much as $95 million even though he's leaving the company with $16.7 billion in debt on its books. The breakdown, according to the Wall Street Journal:
-- $69 million from 4.27 million stock options granted over his eight-year tenure at El Paso. These include 2.9 million vested options, 1 million unvested options, an an additional 377,000 options granted in April 2011, and more than 600,000 additional shares of now-restricted stock. All options automatically become vested and can be sold by Foshee if he leaves within two years.
-- A $7 million severance payment, representing three times his annual salary and target bonus.
-- Up to $1.3 million in an additional bonus.
-- Roughly $1.9 million in pension and related benefits.
Of course, that doesn't add up to $95 million, but other prospective perks were not disclosed.
Apologists for this plutocratic binge will undoubtedly cite as justification the fact that under Foshee's ten-year tenure at El Paso, he led a turnaround of the company, which prior to his arrival had been caught up in energy-trading controversies earlier in the decade. The value of El Paso shares doubled as a result of the turnaround. But El Paso Corp. experienced one critical service failure, as explained by Peter Godbois in a comment to the Journal:
Last winter the southwest experienced unusually cold weather for a few days. Because El Paso had failed to upgrade and maintain critical parts of their pipelines, the flow of natural gas was stopped to thousands of households. My home was without heat for three days until service was resumed. El Paso let me down but the CEO prospered. I hope Kinder Morgan will better manage the pipeline.
We still face a similar threat in south central Alaska, although we've taken measures to reduce the possibility of an occurrence. Note that in Albuquerque, New Mexico, where the bulk of the outages occurred, technicians had to manually restart each consumer's natural gas service after the outage was resolved; this is a time-consuming process.
There are many other critical comments appended to this story in the normally business-friendly Wall Street Journal. Many recognize the possibility that OWS will exploit it, as indeed they should. The dilemma is in how to resolve the problem:
(1). What Not To Do: Government cannot be placing restrictions on salaries and compensation; this would constitute intolerable interference in the free market. If a person can leverage a $95 million payoff through performance and negotiating skills, more power to him. Liberty needs to take precedence over equality.
(2). What To Do: Tax the bejesus out of these packages. With a $14 trillion national debt, annual deficits as far as the eye can see, and a crumbling infrastructure, we are morally justified in asking someone who gets a $95 million golden parachute to cough up at least half of it in combined taxes at different levels so that government can fulfill its mandate to promote the general welfare. What we need is to narrow the definition of "general welfare". Publicly funding Planned Parenthood, the National Endowment for the Arts, or National Public Radio may not qualify as general welfare, but fully funding road and bridge repairs, as well as the Social Security and Medicare upon which so many have become dependent does qualify as general welfare. Eliminating federal government redundancy will also help; the federal government should not be duplicating functions already assumed by state governments.
We need a balanced mix of capitalism and socialism, with capitalism as the main dish and socialism as side dishes or condiments.