Chicago Medical Malpractice Lawyer Blog

For some reason it is easier to cap the damages for medical malpractice victims than it is to cap CEO pay. Robert Nardelli of Home Depot takes the prize this month for taking home $200 million dollars for an stock that is down 13%. While Mr. Nardelli was rewarded handsomely for his non-performance which got him forced out of the company the bonus pool for 319,000 non-salaried workers at Home Depot was cut in half from $90 million to $44 million. That is $137.93 per worker.

Next time a corporate CEO calls to cap damages for medical malpractice victims point out the absurd growth of CEO pay that has no relationship to corporate stock performance. How is it that only the people whose lives have been destroyed by negligence have to settle for caps?

NEW YORK (CNNMoney.com) -- The pay packages of U.S. chief executives are outpacing investor returns, suggesting that their compensation is not based on performance, according to a report published Monday.

The survey conducted and reported by the Financial Times, which looked at compensation of chief executives of companies in the S&P 500 index, revealed that the median compensation for a CEO rose 20 percent to $5 million during the past fiscal year.

That tops both the net profit and shareholder returns of those same companies, which rose 15 percent and 9 percent respectively, according to the paper.

"The reality is that this is a false market driven not by appreciation in the share price and earnings but by what other chief executives are getting," Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, told the FT.

Experts told the paper that the survey, which looked at the salary, bonuses and options exercised by chief executives over the past two years, also indicates that their compensation packages are increasing at a much faster pace than the pay of the average worker.

The New York Times business page contained an interesting article on CEO pay. The article points out that there are plenty of people willing to work as CEO of a company for as well as and for much less than the excessive amounts routinely paid:

As Mr. Joss, the Stanford dean, sees it, there is more than one lesson to the story. Certainly, board members should realize that no employee is irreplaceable. But they should also remember that they have great leverage in pay negotiations, because being a chief executive — like being a big-league manager — is an enormously appealing job.

“Not only is it good economically, but it’s meaningful work: The executive is doing something he loves, and he is part of something,” Mr. Joss said. “You wonder how many C.E.O.’s would really leave these jobs.”

The Wall Street Journal reports that a New York State justice ordered former chairman of the New York Stock exchange Dick Grasso to repay millions of dollars in excessive compensation. This is a recurring theme in corporate America. A CEO appoints his friends to his board, as well as other CEO's with business ties to the company, then a friendly compensation committee is put together and sure enough they decide to pay the CEO millions of dollars.

Mr. Grasso's pay package of $187.5 million was considered to be a little on the high side for New York Attorney General Elliot Spitzer who pointed out that, after all, the New York Stock Exchange was a not for profit corporation. In fact, when asked some questions by the SEC, Mr. Grasso invoked the fifth amendment and refused to answer.

In ruling against Mr. Grasso Justice Charles E. Ramos repeatedly chastised Mr. Grasso, writing that, among other things, he had failed to adequately disclose the size of his $187.5 million pay package to the board. The justice also criticized the board for failing to do its homework.

Illinois Lieutenant Governor, Pat Quinn, recently pointed out that the annual pay package for the CEO of Exelon is somewhat excessive at $27 million. Mr. Quinn is wondering why a company that can afford to pay millions to its executives needs a rate hike.

If you are a medical malpractice lawyer, then next time someone tries to blame you for the high cost of medical care refer him to the compensation package of Dr. William McGuire, now the former CEO of UnitedHealth Group. Between 1994 and 2002 Dr. McGuire obtained stock option grants worth $1.78 BILLION. It seems that many of these grants were awarded at the lowest price the stock had seen in the quarter, raising the suspicion that the awards were backdated.

The way to reduce the cost of medical care is not to take away rights from the victims of medical malpractice, but to require corporate boards to police their CEO’s. Instead of acting as a rubber stamp corporate boards need to ask some tough questions like:

Dr. McGuire is it true that our company has awarded you $1.78 BILLION in stock options over the last eight years? Don’t you think that is a little much? There are 30 million kids in this country without health insurance and our lobbyists are pushing for a $250,000 cap on damages for brain damaged people – do you really need that much money for yourself?

My thinking on overpaid CEO's has been profoundly influenced by a business man of integrity: Warren Buffett- the second richest man in the world according to Forbes magazine. Unlike many modern CEO's, Mr. Buffett made his money the old fashioned way: he earned it. Mr. Buffett's company Berkshire Hathaway pays him $100,000 per year. That is not enough to amass a fortune of $46 billion dollars - most of which he is giving to charity. He made his money by increasing the share value of his stock in Berkshire. Unlike many modern CEO's that take their money without regard to the fate of the stockholders, Mr. Buffett's wealth is directly linked to the share price of his stock. Here is what Mr. Buffett has to say about CEO pay starting on page 16 of his 2005 letter to shareholders: http://www.berkshirehathaway.com/letters/2005.html

You may wonder why a medical malpractice lawyer blog would have a section for the overpaid CEO of the month. It is because I am tired of the hypocrisy. I have been a medical malpractice lawyer for 23 years and not a day has gone by without some overpaid hypocritical CEO calling for my clients to have their damages capped at $250,000 or some other arbitrarily low amount that only serves to lock in sick profits for insurance companies and corporate America. I represent people that have lost arms and legs. I represent people that have been permanently brain damaged and rendered quadriplegic. I represent people whose mothers were abused and raped in nursing homes. So when people like Hank Greenberg call for caps on damages for my clients I say: hypocrisy. Why am I picking on Hank? Because before he was forced out of AIG, a medical malpractice insurance company, while being investigated by New York Attorney General Elliot Spitzer, Hank was able to amass a fortune of $2.8 billion dollars. While amassing that fortune Hank regularly called for, and had an army of lobbyists and PR people working for caps on damages for the most severely injured victims of medical malpractice.

Of course, Hank will say it is the medical malpractice lawyers that are greedy for those contigency fees they charge. But this is the thing about contingency fees: they transfer the risk of losing in court from a catastrophically injured client to that client's lawyer. Without contingency fees, only rich people like Hank can afford to take the risk of going to court. Let's face it, who else can afford to pay a lawyer $300 per hour and hundreds of thousands of dollars in litigation costs for a chance at winning at trial.

So when billionaire insurance executives start calling for caps on damages for my brain damaged, limbless and widowed clients, I say let's be fair about it. If we are going to cap grieving widows and quadriplegics let's cap pay for CEO's and lawyers. I will agree to cap my annual compensation if all current insurance CEO's agree to do the same. (This offer does not apply to Hank because he already has $2.8 billion dollars)