Jeff Smith 2 p.m., Dec. 18
Paulson Raked in $27 Million a Year While Heading Goldman, Says Expert Graef Crystal, Who Opposes the $700 Billion Bailout and Also Opposes Compensation Controls
Wonder why Treasury Secretary Hank Paulson is resisting pay controls on financial companies that turn over their toxic mortgage paper to the government? Well, Paulson gobbled up $27 million a year in 7.5 years as head of Wall Street's Goldman Sachs, according to former San Diegan Graef Crystal, one of the ranking experts in executive compensation. In those years, Paulson's base salary was low, but his $67 million in cash bonuses and $95 million of free shares in his company were quite high, calculates Crystal. However, the company's stock did very well during Paulson's tenure, averaging 12.3 percent a year better than the Standard & Poor's 500. Crystal believes chief executive pay is excessive, but government attempts to rein it in worsen the problem. He cites President Nixon's pay controls of the mid-1970s. "All they did was constipate the system, and when they ended, pay exploded," says Crystal. There are better ways to bring compensation back to sanity. The Internal Revenue Service code says that compensation that is deductible must be reasonable. The IRS should jump in with lawsuits. Also, courts cite the business judgment rule in deferring to the wisdom of boards of directors. But boards never do a self-critical job in evaluating their companies' activities. The rule should be softened, says Crystal.