The 5 biggest lies on Wall Street - 4 (zt)

卜丁

Big Lie No. 4: Overpaid CEOs are worth the money
Whenever I write about greedy CEOs who get paid too much, company PR machines trot out the old saw that pay has to be so high "to attract the best talent."

Oh, really?

Then why are we suffering such a deep recession and huge market losses? After all, the CEOs at the banks that got us into this mess were paid like kings. Let's take a look at some of the consequences -- and predictions -- brought to us by the supposed "top" talent purchased with all that money:

An extreme underappreciation of his problems. At Lehman Bros.' very last annual meeting in April 2008, then-CEO Richard Fuld opined that "the worst of the impact of the financial markets is behind us."

In June, he told investors the investment bank was "well-positioned" because of efforts to strengthen its balance sheet.

Fuld was supposed to be a "top talent"; Lehman had paid him more than $186.5 million in salary, bonuses and profits from stock options in the prior three years, according to Equilar, an executive compensation research firm.

Yet by autumn, Lehman vanished, setting off the October 2008 market crash. It had been killed by mortgage-backed securities and other investments made on Fuld's watch.

The cost of moving too fast. On Sept. 15, Bank of America (BAC, news, msgs) CEO Ken Lewis announced that the banking giant was buying Merrill Lynch, saying the deal -- cobbled together over a weekend -- was "a great opportunity" for shareholders because together the companies would be "more valuable" due to synergies.

Lewis had taken home $98.6 million from 2005 to 2007, so you'd think he would know what he was talking about. So far, he's been terribly wrong.

Bank of America reported a $21.5 billion fourth-quarter loss. The government responded by injecting $20 billion in new capital Jan. 16 and guaranteeing $118 billion in potential losses from the Merrill Lynch deal.

The stock has been crushed. Bank of America closed at $33.74 the Friday before the deal was struck. It fell to $26.55 on Sept. 15. It dropped to as low as $3.77 on Feb. 5 before recovering to $5.57 on Friday.

What seems clear is that these executives were blissfully ignorant of the growing risks to their businesses or simply chose to ignore them.

And despite all the bad press about CEOs raking in millions for lousy performance, the tricks continue. D.R. Horton (DHI, news, msgs), the nation's largest homebuilder, lost a whopping $8.34 per share in fiscal 2008, which ended Sept. 30. The stock has fallen 79% since July 2005.

Yet Chairman Donald Horton and CEO Donald Tomnitz collected $5.4 million and $4.4 million, respectively, for the year, including $1.8 million each in performance pay. They were rewarded for hitting benchmarks on cost cutting, pretax income and operating cash flow.

None of this is new. CEOs have been collecting big bucks for lousy performances for years.