For corporate chief executive officers and hedge fund managers, the good times never stop rolling. Twenty years ago, CEOs made an average of 40 times more than the factory floor worker. Last year it was 400 times more, and is now climbing to a multiple of 500.
The ingredients for guerrilla class warfare came from no less an authority than the Internal Revenue Service: Average incomes shrank two consecutive years, down 5.7 percent, while median CEO pay rose 15 percent in 2003. It was hard to escape the conclusion the gap between rich and poor was widening by the year.
For the Fortune 100 companies, CEOs sweetened their take home pay 22 percent — including base salary, annual bonus, total annual compensation, restricted stock, long-term incentive payouts and the added value from stock options. The only negative for the company jet set was money derived from the exercise of stock options; it dipped slightly last year. But it was back on the upswing in 2004.
The CEOs of Oracle, Apple Computer, Yahoo and Colgate-Palmolive increased their total compensation by a whopping 1,000 percent or more. The recordholder appeared to be Barry Diller, CEO of InterActiveCorp, with $156 million, most of it in stock option profits. The 25 top earning hedge fund honchos doubled their compensation in one year to an average of $207 million — each.
According to Institutional Investor magazine, David Tepper made just over half a billion dollars from Appaloosa Management; James Simons took away an even $500 million from Renaissance Technologies; and Edward Lampert, in fourth place if you count the Soros Fund Management group with $750 million, pocketed $420 million from his ESL Investments.
U.S. Securities and Exchange Commission Chairman William Donaldson doesn’t like what he is seeing in hedge funds’ methods of operation as they top the $800 billion mark on their way to their first trillion dollars. They are largely unregulated and how the industry determines portfolio value — i.e., the pricing of hedge fund shares — is shrouded in now-you-see-it-now-you-don’t opaqueness. Mr. Donaldson says this can only be elucidated when hedge fund managers are compelled to register with his regulatory agency.
The money management firm Bridgewater Associates concluded hedge fund investing is for dummies. Yet the industry continues to attract money faster than ever. Greenwich Associates sees lower returns with investors balking at management fees. Hedge funds charge a “carry fee” each year equal to 20 percent of the fund’s profits. Management fees are usually 2 percent of a portfolio’s holdings.
Next to hedgies, Sandy Weill, chairman and CEO of Citigroup, was a model of restraint with annual comp of $54 million. But calls for self-control following an avalanche of Wall Street scandals clearly went largely unheeded. Richard Grasso, former chairman of the New York Stock Exchanged, thumbed his nose at restraint when he walked away with $188 million and change. New York Attorney General Eliot (Ness) Spitzer, the scourge of Wall Street’s high fliers, challenged Mr. Grasso’s grasp, and the diminutive, bald Mr. Grasso gasped. Not for long. He counter-challenged Mr. Spitzer’s jurisdiction — and his lawyers punched the clocks that are bound to shave a few million from Mr. Grasso’s bonanza.
For executives below the CEO, the increase wasn’t shabby either. They saw their median income go up almost 10 percent.
Private aviation was in hog heaven, as were the large boat-charter companies that span the Mediterranean from Marbella to Monte Carlo. Boat rentals of $1 million for the month of August are not uncommon. That includes a crew of 10 or 12, but food and booze are extra.
The Republicans are accusing the Democrats of waging class warfare. But who’s been supplying the ammo? There are more elephants among the plutocrats than donkeys. Yet their ranks also include plenty of smart donkeys — not a contradiction on Wall Street. In fact, ABC discovered one Hollywood left coaster who competes with George Soros as John Kerry’s largest benefactor. The network also dug up some interesting mafia connections with the benefactor in New York. The other fellow in a zoom lens photo of the two sharing a drink tweaked the FBI’s interest. The bureau recognized him as an underground hit man.
A year ago, Warren Buffett, arguably the world’s most astute investor and at $41 billion its second wealthiest after Bill Gates, urged shareholders to rebel against executive greed. But greed has now given way to the kind of gluttony that has provoked social upheavals time and again throughout history.
Despite his billions, Mr. Buffett lives modestly in Omaha, middle-class style. Rich visitors who have made the pilgrimage to his residence are staggered by the simplicity of his lifestyle. The rebellion Mr. Buffett advocated in 2003 may spring some ugly surprises Nov. 2.
Arnaud de Borchgrave is editor in chief of United Press International and editor at large of The Washington Times.