The Midas Protocol

When I arrived on Wall Street in 1951 like Horatio Alger, with my inappropriate B.A., my cardboard suitcase and the lunch money Mummy had pinned inside my jumper, the ratio of the remuneration paid a typical CEO compared to that of a drone in the trading department (such as me) was probably something like 50:1. That was about right, perhaps, considering who was of what value to the firm. But today, in a house like Goldman Sachs, where Lloyd Blankfein knocks down $100 million a year, a more likely ratio? Around 2,000:1.

But before you start organizing a communist revolution or joining the Occupiers abaft the Fulton Street fish market, consider the monumental problems faced by the unfortunate 1%. Such as: the spiking of total compensation paid to top corporate executives has produced so many vexatious problems for that golden few that it’s a wonder they can get any work done. Not just the basic decisions concerning current salary, bonus and stock options, but the brain-numbing choice between future golden parachutes and retirement considerations complicated by the perennially basic alternative between a lump sum and a staged annuity.

Poor babies. It’s not just the simple problem of current compensation, although that’s bad enough. Imagine for a moment that you’re Lloyd Blankfein, it’s Friday afternoon and the chick from payroll just wheeled her cart through the executive suite, handing you an envelope. The check stub notes the usual deductions of withholding tax (n/a in your case, thanks to George Bush the Younger) Obamacare (which is applicable, thanks to Bush’s successor), your 401(k) deduction, and finally the one-time withholding tab for the Christmas Party next December.

In addition, there are all those other things a Wall Street CEO has to worry about late on a Friday afternoon. Such as three IPO’s coming up next week, keeping your eye on the VP in charge of trading, in case he tries to pull a swiftie like the one Jamie Dimon’s JPMorgan Chase got caught in last year, and a meeting of the wealth management committee, probably running late. And then, most importantly, a meeting of the compensation committee. Thinking about all this, scanning the check you find, to your dismay, that your take-home pay this week is a scant $1,825,000 and change.

How will you explain this to the missus when you arrive home on Park Avenue West, or in Great Neck, or in Newport, or whichever other house you are currently week-ending at? Because you’ve previously told your bride that you’re knocking down two mill a week, and she should adjust her supermarket budget accordingly. It won’t do to admit that you stopped in Oyster Bay for a couple of beers with the boys, which explains the shortfall of 175 K. Reader, you think YOU’VE got problems.

The poor 1% guys are overburdened with the problems of their retirement as well as current compensation. So much so that a few thoughtful companies – Goldman is one of them – have set up internal financial consultancies as subsidiaries (Ayco Co., in the case of Goldman Sachs) to counsel these poor overburdened executives on how to maximize their take now and in the future, wandering in the myriad wasteland of taxation, state law, inflation, deflation, actuarials, demographics and the trend in likely future funeral costs, particularly if you fancy a mausoleum in lieu of a simple cremation cum plastic headboard like the rest of us.

It’s amazing how a financial genius who has spent 30 years inventing instruments as subtle and sophisticated as credit default swaps, and thereby running enormous operations that you and I can’t even understand without a road map, turns out to know nothing about the care and feeding of hundreds of millions of their proprietary dollars in their own retirement account. It’s an American tragedy that has yet to be appreciated by ingrate individuals like you and me.

In computing retirement income and its disposition you need a crystal ball. “If you live to 110,” says one retirement consultant, “you’ll be glad you chose an annuity. On the other hand, if you kick at 68, your family will be grateful that you opted for a lump sum.”

The lump sums can cause a lump in your throat. According to Frederic W. Cook & Co., which messes with this kind of occult information, Wal-Mart CEO Michael Duke has a deferred compensation plan balance of $85,379,524, Samuel Palmisano of IBM is looking at a stash of $68,637,022 and ConocoPhillips’ chief pooh-bah James Mulva will have to scrape by in his golden years with $44,380,733. But those are just the deferred-payment buffs. How about those wastrels who don’t care to “only stand and wait?” Apple’s Timothy Cook, Vikram Pandit of Citigroup and – wait for it – Warren Buffett himself, the bullgoose financial genius of all time, all of them have NO deferred compensation balance at all. Nada. Zip.

I know they chose not to wait. Maybe money burned a hole in their pockets. But I think we should start a petition to do something for these guys. Call it a CEO bailout. Surely these guys are too big to go broke in their old age.

Actually, Buffett may be the exception, so we should cut him a little slack. He may even have anticipated the Midas thing: some time ago he declared that out of true compassion, he isn’t going to leave everything to his kids. He’s told them that with the exception of a bit of pocket change – a billion or two each for walking-around money – it’s going to be root-hog-or-die. Like it was for him. Apart from the 30 or 40 billion he gave to the Bill and Melinda Gates Foundation, Warren has pretty well frittered the rest of it away. A few billion in his 401(k) maybe.

(Speaking of Warren Buffett, it’s a mystery to me how he and I are pretty well contemporaries, although I’m a tad older, how he and I covered the same ground in our dissolute youth, studying Ben Graham’s book as undergrads, and yet somewhere along the line I missed something. I guess I skipped class the day the prof covered Graham and Dodd’s chapter on securities analysis. But it’s too late now. The market’s too complicated anyway.)

But to get back to the money problems facing the big guys, I bet it never occurred to you that a top banana in a Pennsylvania company opting for a lump-sum payout on retirement would save the long series of taxation payments that accompany a staged annuity, unless of course he moved to Florida, which has no income tax. But it isn’t that simple. Under Governor Rick Scott, despite his kindly attitude to rich guy’s taxation issues, all you’d have to do is screw up once and smoke a roach or sniff a little crack cocaine and Rick’s administration would cross you off the list for both food stamps and day-old bread.

There’s just no simple pat answer in this business of planning for your retirement, that is if you earn a million a week or so.

And I bet it never occurred to you that a compensation committee in a big outfit like AIG or Bank of America could always cross you up in future years and even challenge deferred compensation, long after you’ve elected a series of annuity payments, rather than an up-front payout. In one case, deferred compensation of $100 million could telescope into s mere present value of $70 million. Faced with the risk of such hardship, this could keep you awake nights.

In fact, I can see how enough of these problems could make a guy actually hate money. Or perhaps flip in the other direction, like King Midas. It’s really ironic how the Greeks started the Midas legend and they could really use him these days. Merkel would probably want him on the Eurobank board. At least, in a sort of touch-and-go capacity.

But Aristotle (and I don’t mean Onassis) knew better. He knew everything there was to know in 322 BCE. But apparently he had no use for money.

Bill Annett writes four newsletters: The Canadian Shield, American Logo, Beating the Street, and The Oyster World. He can be reached at: hoople84@gmail.com. Read other articles by Bill.