Big Bucks

Fulmer’s buyout makes more sense than bonuses for failing executives

Phil Fulmer will be paid $6 million over the next few years for doing nothing. The new coach, Lane Kiffin, will earn more than $2 million per year to coach the Vols football team.

The amounts may seem obscene, but the market forces are obvious. UT football is an economic engine not just for the university, but for Knoxville too, and the output of that engine is directly related to the success of the team. The football program generates more than $50 million each year for the athletic department, funding facilities upgrades and operating costs for almost every other sport, men’s and women’s.

While sports may be tangential to the university’s academic mission, they directly relate to character development and community. Coaching salaries reflect this importance, and severance packages are both a pension and a nod to the volatility of a highly scrutinized job.

Still, Tom Kilgore, head of TVA, faces similar scrutiny, and he is in charge of nuclear reactors, flood control along hundreds of river miles, a major electric grid, protecting natural resources, and improving air quality—responsibilities much more dire than winning games. His base salary was just bumped up to $850,000, with incentives bringing his potential compensation to $3.27 million per year.

TVA employs around 12,000 people, whereas the football staff is a few dozen. Does that make Kilgore more important, or is the opposite is true? Fulmer was intimately involved in all aspects of his program. He was in recruits’ living rooms, in the film room, and in the players’ faces on the practice field. He spoke directly to the media; TVA has a whole staff to do that.

Kilgore need not understand nuclear fission nor hydrology. He is in a position of authority, not expertise. His huge salary may bring respect, but it can also make those below him deferential or resentful. The knowledge and skills needed to run TVA are distributed throughout the staff, in clerks and technicians and in biologists and engineers. Kilgore’s effectiveness depends on how well he connects with all of them, yet a large management structure can insulate executives.

Most big salaries make sense. Inventors and innovators deserve rewards for their breakthroughs. A small businessman who grows a company large has invested determination and dedication. Star athletes must cram a lifetime of earnings into a small window of opportunity. But do CEOs really bring value to corporations in proportion to their salaries, bonuses, and golden parachutes?

I think not, and our current economic pains are proof. The value drained from the stock market this year would not have vanished so easily if it were not a bluff. MBAs have been playing a grand confidence game with us for decades, and we have been perfect suckers.

Investor confidence morphed into blind faith as executives convinced boards that big salaries and benefits were justified. To deliver stock dividends, management sloughed off burdens onto employees and society at large. Job security was replaced with contract labor, health benefits shrank, and polluted land was left behind for government to clean up. The value of high-powered executives came not from leadership skills and good judgment, but the ability to nurse favors from paid-off politicians and get regulators to turn a blind eye. Accounting tricks, outsourcing, and plain meanness filled the management toolbox.

Athletes and coaches are judged by discrete measures: wins, touchdowns, assists. Executives are judged by stock prices, but those are more akin to betting odds than batting averages. The gamble was no good, but we are still playing their game. Bailed-out banks still pay bonuses and throw expensive parties at golf resorts, but we begrudge auto workers the job security their union fought hard to earn.

We can end the charade with a steep hike in the top tax rates. Better yet, let’s make corporate taxes proportional to the ratio between executive compensation and the entry-level wage.

© 2008 MetroPulse. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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