When the going gets tough, the tough get pedicures.
Just days after the federal government committed $85 billion of taxpayers' money to a bailout of insurance giant AIG last month, senior execs from the troubled company headed to Southern California's ultra-swanky St. Regis Resort in Monarch Beach for a week of wining and dining top salespeople.
For The Record
Los Angeles Times Thursday, October 09, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 56 words Type of Material: Correction
AIG event: The Consumer Confidential column in Business on Wednesday about a conference for American International Group executives described Joseph Cassano as the former head of financial products at Lehman Bros. It was at AIG that he held that title. Also, the full company name, Lehman Bros. Holdings Inc., was misspelled as Lehman Bros. Holding Inc.
"They had a conference here," resort spokeswoman Kristi Turek confirmed Tuesday, "but we don't get into details of what they did during that time."
As it happens, congressional investigators released AIG documents earlier in the day showing that the company paid more than $440,000 for the event, including nearly $200,000 for rooms, $150,000 for meals, $23,000 in spa charges and almost $7,000 for golf outings.
The post-bailout getaway for American International Group execs is just one of a series of jaw-dropping revelations to emerge this week about the behavior of some of the companies involved in the financial crisis.
Among other things we now know:
* AIG tried to hide negative information about its condition from auditors before the bailout plan took shape, according to documents obtained by Rep. Henry Waxman (D-Beverly Hills), who heads the House Oversight and Government Reform Committee.
* As early as March, regulators sent a letter to AIG warning the company about its lack of transparency and ability to oversee financial products.
* Just days before Lehman Bros. Holding Inc. filed for bankruptcy protection last month, the company altered its executive pay plan to give senior managers multimillion-dollar bonuses regardless of recent losses.
* Joseph Cassano, the Lehman exec in charge of the company's financial products division, received more than $280 million over the last eight years, according to Waxman. Even after he was shown the door in February, Cassano was placed on a $1 million-a-month consulting retainer.
"This is the new Enron," said Gonzalo Freixes, a professor at UCLA's Anderson School of Management who specializes in business ethics. "A lot of people probably thought we were past this kind of thing."
We aren't, as is becoming increasingly clear with each new peek under Wall Street's hood. AIG's St. Regis wing-ding is a classic example of the financial industry's misplaced priorities.
"Situated high on a bluff overlooking the majestic Pacific Ocean, stands a landmark resort of legendary proportions," St. Regis' website gushes. "Located midway between Los Angeles and San Diego, the Tuscan-inspired St. Regis Resort, Monarch Beach is devoted to the pursuit of service and elegance with a seamless blend of comfort and technology."
This is where you go right after hitting up taxpayers for $85 billion in cash?
An expense form for AIG's stay at the resort shows that most rooms booked by the company cost between $250 and $425 a night. The Presidential Suite, which normally goes for $3,200, was also booked for five nights.
Turek, the resort spokeswoman, said the nearly $500,000 spent by AIG "was a little above average" for a corporate group using the facility.
Joe Norton, an AIG spokesman, said the company's shindig had been incorrectly labeled an executive retreat by lawmakers and members of the media.
"It was not an executive retreat," he said. "It was a meeting to reward and incent independent sales agents."
As Norton described it, AIG had invited about 100 of its top salespeople to stay at the St. Regis for a week of meetings and motivational events -- and, as the company's invoice shows, thousands of dollars' worth of spa and salon amenities.
Norton said only about 10 AIG senior managers attended the event, although he declined to identify them or to say whether former CEO Robert Willumstad was among the group.
"They were the level of people who participate in such discussions," Norton said, adding that resort holidays are "an industry practice to reward top producers."
Well, I have some new industry practices to propose.
First, it's clear that corporate boards can't be trusted to oversee matters of compensation and lavishing perks on the top brass, even when a company is teetering on the brink of collapse. It's time for lawmakers to take a crack.
The average CEO of an S&P 500 company pocketed $10.5 million in compensation last year, or 344 times the pay of a typical worker, according to a study by the Institute for Policy Studies and United for a Fair Economy. Thirty years ago, the average CEO made about 35 times what typical workers pulled down.
I fully support rewarding success. But not failure. So I propose that boards cap a CEO's base salary at no more than 10 times what the company's average employee makes. Bonuses and other incentives would come on top of that amount.
However, those bonuses, including stock options, would be forfeited if the company lost money or if the share price fell by more than, say, 20%.
Moreover, all golden-parachute payouts would similarly vanish if a CEO or other senior exec leaves a company amid any form of distress, like a bankruptcy filing, for instance.
If these guys are truly worth their multimillion-dollar paychecks, such performance-based compensation should be no problem.
If not, they have no business sitting in the corner office.
Corporate America needs some tough love. This is a unique opportunity for Congress and our next president to show that they have Wall Street's -- and the country's -- best interests at heart.
And if that results in a little less profit at the St. Regis spa, so be it.
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