If you’ve ever taken an economics class you’ll recognize the title of this post.  It’s one of the few things I actually remember about that class.  For those unfamiliar, it means “There’s no such thing as a free lunch.”

I don’t know when I began realizing that boards of directors had abdicated their duty and had begun paying CEOs outrageous salaries and bonuses not based on performance.  It was probably a few years ago when Mr. gyma worked part-time at the local Home Depot.  Bob Nardelli was the CEO then and even though the HD stock continued to slide, Nardelli’s compensation wasn’t affected.  His last year at the helm, he received $38.1 million.  When the Board of Directors asked Nardelli to accept a compensation plan more closely tied to performance, he said no.  Nardelli left soon after with a $210 million prize.

This got me wondering about how the CEOs of these failed institutions fared.  See for yourself:

  1. Stanley O’Neal of Merrill Lynch:  ML has written down $45 billion in bad debt, but O’Neal walked away with $161.5 million.
  2. Angelo Mozilo of Countrywide Financial:  Countrywide’s worth has gone from $25 billion to $2.5 billion, but Mozilo left with $121.5 million.  He’s currently being investigated by the SEC.
  3. Charles Prince of Citigroup:  Before he left in 2007, Citigroup lost nearly a quarter of its market value and a 57% drop in quarterly earnings, but Prince received a $68 million payout.
  4. Robert Willumstad of AIG:  During his 3-months on the job, AIG’s stock went from $27 a share to $2 a share and the insurance giant was provided with an $85 billion government bailout.  Willumstad was offered a $22 million severance package, which he refused.
  5. Prior to Willumstad, Martin Sullivan spent 3 years with AIG and left after 2 quarters of record losses and $20 billion in losses.  That didn’t keep Sullivan from receiving a payout worth $47 million.
  6. Richard Fuld of Lehmann Brothers:  After Lehmann Brothers declared bankruptcy, Fuld received $22 million.
  7. Kerry Killinger of Washington Mutual:  At its peak WaMu was worth $44 billion.  It is now worth about $5 billion.  It is being reported that Killinger received close to $22 million.
  8. Jimmy Cayne of Bear Stearns:  Under Cayne’s tutelage, Bear Stearns stock went from $170 a share to $10 share.  Cayne’s on the other hand, received $61.3 million from dumping Bear Stearns stock before the plunge and received an additional $4.6 million in JPMorgan stock.
  9. Michael Perry of IndyMac Bank:  Perry managed IndyMac for 15 years and was instrumental in the 2nd largest bank failure in history.  That didn’t keep him from receiving nearly $37.5 million during his last 5 years on the job. 
  10. Ken Thompson of Wachovia Bank:  While Wachovia continues to struggle after suffering a 41% dividend cut, Thompson was forced out but took with him $8.7 million.

So maybe TNSTAAFL no longer applies, because it certainly appears that many of these guys got a couple of free lunches.

But seriously, does anyone not understand why CEO compensation is being tied to this $700 billion bailout?


One Response to “TNSTAAFL”

  1. I recognized the title not from economics class but from reading lots of books by Robert A. Heinlein.

    Maybe the US should follow India’s lead and start lynching CEOs?

    No, I’m not seriously suggesting we murder CEOs. But if we take away golden parachutes and the like, it will help…

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