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The Executive Pay Cartel



The company that took over Don Blankenship’s organized crime organization in West Virgnia ran it into bankruptcy in less than five years. For workers, this has not worked out well:

Since then, Alpha has laid off some 4,000 workers and filed for Chapter 11. Post-Massey, it operated well over 100 active mines; now it has closed all but 50.


Sure enough, Alpha is going after health and life insurance benefits it promised retired employees. Specifically, according to its court filing, it is trying to rescind “certain unvested, non-pension welfare benefits (e.g., hospital, medical, prescription, surgical and life insurance) currently offered to certain of [Alpha’s] non-union retirees.” Some 4,580 non-union miners and spouses would lose benefits under the filing.

Yanking health insurance from any retiree is bad enough, but these are people who spent their working lives in highly unsafe conditions; many now suffer from black lung and other coal-related ailments.

Hey, if people with black lung disease wanted medical care, they should have pulled themselves up by their bootstraps and become 25-year-old Stanford-educated software developers! Their corporate betters can demonstrate how American meritocracy works:

Their usual pay is okay, I guess. The Casper Star Tribune reports:

Alpha CEO Kevin Crutchfield received $7.8 million in total compensation in 2014, financial filings show. Former President Paul Vining took home $4.5 million, the chief financial officer made $1.9 million and Executive Vice President Brian Sullivan earned $1.6 million.

But when you’ve bankrupted your company and now you have to immiserate old and sick people, you need more of a picker-upper — a little something extra.

So Alpha proposed to pay these executives bonuses that could in some cases more than double their salaries. Depending on the cost cutting achieved, the bonuses could reach up to $11.9 million.

Alpha argued that the money was necessary to provide incentives for executives to help the company restructure out of bankruptcy, incentives presumably not provided by their salaries or legal obligations.

(Alpha also gave executives substantial performance bonuses last year, even as they were piloting the company into bankruptcy. Not clear what those incentives were for.)

This is an extreme case, but it pretty much defines how the wealthy define incentives differently for themselves and for ordinary workers. For the latter, a middle-class salary will make them lazy and in any case is an unnecessary expense. For those at the top, a multi-million dollar salary isn’t enough incentive to do your job. Note, too, how contradictory ideas about responsibility seamlessly replace each other depending on what’s necessary to justify the looting of the workers and shareholders. When the company goes into bankruptcy less than a five years after you take it over, doesn’t that suggest that you’re massively incompetent and don’t even justify a six-figure salary, let alone a seven-figure one supplemented by performance bonuses(!)? Why no, because the market for coal collapsed, so ¯\_(ツ)_/¯, not our fault. But when it comes time to get de facto retention bonuses, these same people become absolutely indispensable supermen with irreplaceable skills. Obviously, Alpha’s executives can’t simultaneously by caretakers who preside over a company whose profits are determined almost entirely by factors beyond their control and people with unique skills the company absolutely cannot afford to lose and must be retained at any price, but whatever it takes. (Taibbi was particularly good on this point in the context of the AIG financial whiner.)

This line of thinking is hardly absent from my line of work. I guarantee that the guy proposing that faculty spots go to the lowest bidder wouldn’t apply that logic to the Board of Trustees, presidents, or provosts. The defense of less extreme versions of this dichotomy would be that the top-level administrators are simply irreplaceable and there is fierce competition for their services, which rarely holds up. Consider the new president of the University of Iowa. Not only did he have no credentials as a higher ed administrator, even his credentials as a business administrator were underwhelming. And yet, he will get $790 grand a year in salary and pension compensation alone. The idea that there was some kind of bidding war for the guy or that he had unique skills that had to be obtained at any price is absurd. Obscenely high salaries aren’t used to acquire extraordinary talent; they’re used to justify the salaries of the people doing the picking and to convince themselves that whoever they hire is really good. Nice racket if you can get into it.

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  • Nobdy

    justify the looting of the workers shareholders.

    Should that be “justify the looting of the workers and shareholders”?

    Also I think it’s important to note that expensive executives are often Veblen goods in their own way. You show strength as an organization by paying a big salary to get expensive super qualified executives. How do you know they’re super qualified? Look how expensive they are.

    Nobody wants to say “Yeah we managed to get a solid manager for $200,000 a year. He’s not the absolute best but he’ll do just fine for this mature company that doesn’t need a radical visionary, just a firm hand at the tiller.” Your stock price will go into the toilet.

    Wall street demands growth. Growth demands a “risk taker” with “vision” and the strength and ability to beat the market. But how can you know who the most competent risk taker is when you don’t have time/opportunity for your own evaluation? Look at his salary!

    • Scott Lemieux

      Fixorated, and yes.

  • Crusty

    “Nice racket if you can get into it.”

    Often, I’ll see job listings asking for your current salary. Not a salary requirement, as in what salary are you looking for, please tell us so that we don’t waste each other’s time with an interview, but just what is your actual, current salary.

    I’ve always assumed that the purpose of that is for them simply to decide if he’s one of us. If you make substantially less at your current job, they won’t hire you, because obviously you’re a loser and not one of them. If you make more, well, obviously you’re a super star so they should pull out all the stops to get you. The idea of gradually advancing is kind of just a myth.

  • DrDick

    If executive compensation was actually based on merit and contributions to corporate productivity, most CEOs would have to pay their employers.

    • howard

      I have been saying for years that I’ll take CEO salaries seriously the day the exec committee says to the three finalists “give us your bafo and we’ll pick the lowest.”

  • Snarki, child of Loki

    I think I’ve heard of that long-running theatrical show….isn’t it called “THE ARISTOCRATS” ?

  • Rob in CT

    Roberts’ article sets the reader up well, doesn’t it? He quotes the (devastating, IMO) filing by the US Trustee. The unsuspecting reading must think “that’s just irrefutable!” and then he hits you with the end result: the execs get their bonuses approved by the judge, in a closed court room. Boom.

    Something that stuck out, in particular, to me was that the exec bonuses were quadruple the cost of the savings from screwing workers out of their benefits ($11.9 million vs. $3 million).

    • Mellano

      To be fair, they’ve cut $3 million a year. So next year they can figure out how to hit five or six times the miners’ insurance benefit savings.

  • Zoogz

    In addition to paying these bonuses, Alpha asks this Court’s permission to conceal the identity of executives taking these payments, the amount of the bonuses Alpha intends to pay each of these executives, and the compensation these executives are already receiving. In other words, Alpha seeks to conceal all of the information parties in interest would need to evaluate the propriety of the bonuses.

    Lawyerese is lawyerese… but am I the only one that would be interested in a book about all these dodges from the quoted US Trustee Program respondent?

    • Lee Rudolph

      the quoted US Trustee Program respondent

      Sounds more like the US Witness Protection Program.

    • Scotius

      I don’t know if I could make it through such a book without flinging it repeatedly against a wall.

  • Brett

    If even a mediocre tool like Harreld at Iowa can walk into a cushy, high-paid gig off of questionable previous CEO experience, then what does that say for any semi-competent top-level management at Alpha? The company might be right to be afraid that if they don’t offer the bonuses, most of their upper management will just desert the firm for better prospects elsewhere.

    • Brett

      Although that would be an interesting test of the argument, if they refused to pay and the executives walked. If their replacements do the job with aplomb (whether recruited from the outside or promoted from below war-time style), then it would be very damning evidence of over-payment of the original top brass.

      • Lee Rudolph

        Doing the job with aplomb would be pretty good evidence that the Age of Brass had been replaced by the Age of Lead.

        • Bill Murray

          or that Little Jack Horner was the new CEO

    • Scott Lemieux


      Assumes facts not in evidence.

      • Brett

        You’re right. Considering the career path of Bob Nardelli, even “semi-competence” may not be required for being successfully head-hunted at that level.

  • ColBatGuano

    Heck, I could have bankrupted the company faster and for way less money. Why didn’t they offer me the job?

  • busker type

    If I remember correctly (and I can’t find any corroboration right now…) the whole story is even more devious than this suggests.
    Alpha did not fail by accident, the profitable mines were spun off into separate corporations, and those with under-funded pensions and obligations were held in alpha creating a house of cards that was DESIGNED to go bankrupt and relieve the shareholders of that pesky debt… am I remembering this wrong?

  • Bruce Vail

    Federal bankruptcy court judges bear some of the responsibiliy for these kinds of abuses. They have a lot of latitude in approving the pay packages and bonuses for executives of companies in Chapter 11.

    I’d say the federal bankruptcy code is long overdue for an overhaul, with special attention paid to retirees who routinely get fucked in these cases.

    The A&P grocery chain bankruptcy is winding up now with similar features of over compensation to execs and callous mistreatment of employees:


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