Here a just a few recent headlines:
Silicon Valley Bank paid out bonuses hours before seizure
SVB Financial CEO Sold $3.6 Million In Stock Before Bank’s Collapse
Bailout talk roils Washington after Silicon Valley Bank’s collapse
Norfolk Southern railroad execs got cash, in part, for 'record' train length
There is no end to similar examples — corporate executives taking cash out just before a disaster. And the asking for a bailout after a disaster. And incidentally, republicans make a regular practice of it; just look at Romney and Bain Capital’s whole business model of LBOs followed by bankruptcies, or Trump’s many business bankruptcies that left him (allegedly) wealthy. But this isn’t about partisan politics, it’s about corporate executives and accountability.
It’s time for executives to have some real skin in the game and be accountable for their management decisions.
My proposal is that all executive compensation — salary, bonus, stock options and grants, profits from stock sales, everything — be held in escrow for 10 years. And not by the company but by a reputable third party. The benefits can be released to the executives over the 10 years — maybe 10% annually, maybe less up front and more deferred, maybe with interest or accrued gains and/or losses applied. But here’s the accountability part — if the corporation has a disaster, if the FDIC has to take over a bank, if they have a liability (or defamation) lawsuit, if they declare bankruptcy, if they have a layoff exceeding certain parameters, if the PBGC has to assume pension liability, then the escrow account gets used to pay the bills. This is the skin in the game, the necessary accountability for management decisions and the incentive for long term thinking that is lacking today.
In my mind, “executive” is loosely defined here — not just the top corporate officers. I would include directors and officers for sure, but also the next several levels of the organization. Maybe define it by pay level and include all compensation in excess of $500,000 per year as a start. Include public corporations, privately held companies, non-profits and any other form of “business”.
A sweetener that could be added to the policy — if the escrowed funds are depleted, we could have a formal “bailout” program like the FDIC or PBGC. This probably needs to be funded with another tax, but it makes sense to insure excess corporate liabilities — but only after the corporations and their executives are held accountable to the fullest extent possible.
Medicaid has a five year lookback, with penalties applied for excess expenses or gifts prior to a Medicaid application. They even take back benefits paid from the estate of a Medicaid client after death. Why shouldn’t corporations have a comparable lookback period before they can benefit from bankruptcy protection or other bailouts?