Teamsters move to restrict obscene payout to McKesson CEO

John Hammergren

The Teamsters are more than a little annoyed that McKesson CEO John Hammergren stands to take home $616.5 million if the company were sold tomorrow.

Call Hammergren the poster child for inequality. Employees at McKesson's Lakeland, Fla., facility voted to become Teamsters because some of them don't earn enough to afford health care. McKesson's idea of fairness is to try to bust the union while giving its CEO more than a half-billion dollars.

The Teamsters have charged McKesson with illegally busting unions, coercing employees, discriminating against union members and firing a worker for exercising her First Amendment rights.

All the Teamsters want is a fair share of the profit they help produce. To that end, the Teamsters are fighting to curb Hammergren's immoral take-home pay at the company's annual shareholders' meeting. Bloomberg today reported on the Teamsters proposal:

Hammergren’s potential payout under a change in control would include equity awards worth $140.6 million that were set up to vest only over time. They’d be his right away, though, if he were terminated after a sale. The International Brotherhood of Teamsters, which calls that kind of pay “unearned compensation for top executives on their way out the door,” has proposed a ballot measure urging McKesson’s board to reduce the accelerated vesting. 

While it’s not unusual for unions to challenge CEO pay provisions, the Teamsters’ proposal is endorsed by proxy advisory firm Institutional Shareholder Services. It has also drawn support from CtW Investment Group, which represents investors with $250 billion in retirement assets under management, and the New York State Common Retirement Fund, which oversees $160.7 billion in retirement money, according to officials at both organizations.

According to Bloomberg's assessment, Hammergren is doing 'reasonably well':

His $292 million change-in-control severance package, combined with $289 million more in company stock and options he already owns, would bring his total kitty in the event of a termination to $581 million on paper—a figure based on valuations as of March 31. Factor in an 8.8 percent increase in share price since then, and it would come to roughly $616.6 million, according to calculations by Equilar.

Teamsters fight taxpayer subsidies for outrageous CEO pay

The Teamsters are actively lobbying for a bill that would prevent CEOs from plundering their companies at taxpayers' expense. Average CEO pay rose 13 percent just last year.

Take, for example, McKesson CEO John Hammergren, a union buster who took home $51.7 million last year after the company paid nearly $1 billion fines to settle charges it cheated its customers.

The Next New Deal blog explains how these CEOs are also looting taxpayers.

It started when President Bill Clinton signed a law eliminating corporate tax deductions for executive pay higher than $1 million. But the tax change had a loophole: so-called 'performance pay' was still tax exempt.

No surprise as to what happened next:

...companies started dispensing more compensation that qualified as performance pay, particularly stock options. Median executive compensation levels for S&P 500 Industrial companies almost tripled in the 1990s, mainly driven by a dramatic growth in stock options, which doubled in frequency...

Performance pay made executives very wealthy, very fast. It motivated them to make shortsighted, risky and sometimes fraudulent decision to boost stock prices. Performance pay led to the mortgage crisis and global financial meltdown in 2008. It encourages CEOs to spend cash on buying back stock to boost the price, rather than research and development, capital investment, workforce training, higher wages and more hiring.

What's worse, taxpayers subsidize that behavior. The Economic Policy Institute estimates taxpayers paid $30 billion for that loophole between 2007-10. According to the Institute for Policy Studies, the CEOs of the top six public food chains “pocketed more than $183 million in performance pay, lowering their companies’ IRS bills by an estimated $64 million.”

Democratic Sens. Ralph Blumenthal of Connecticut and Jack Reed of Rhode Island introduced the Stop Subsidizing Multi-Million Dollar Corporate Bonuses Act, which would end taxpayers’ subsidies to CEOs by closing the performance pay loophole. Teamsters are actively lobbying for more co-sponsors to a companion bill in the House, sponsored by Democratic Texas Rep. Lloyd Doggettl.

CEO's lavish pay trimmed at McKesson, a Teamster employer

John Hammergren

McKesson CEO John Hammergren took a 'voluntary' $45 million cut to his pension after shareholders said 'no more' to his lavish wages at the company's annual meeting in August. 

His pension is now 'only' about $114 million. Last year, he took home $51.7 million in pay. Meanwhile, McKesson pays some of its workers so little they can’t afford health care.

The Wall Street Journal reported today:

Medical-products distributor McKesson Corp. said it made more changes to its executive compensation programs and its chief executive voluntarily reduced his pension benefit, after activist investors complained about the company's pay structure. 

CEO John H. Hammergren will reduce his pension benefit by $45 million, which McKesson said Friday will eliminate the volatility of pension benefit calculations, which result from changes in interest rates or other issues. 

Companies such as McKesson are increasingly using unconventional earnings measures when determining bonuses, which makes it easier for them to appear more profitable when they reward executives with big pay days, according to a Wall Street Journal report this week.

Shareholders in August voted by more than 3-to-1 to reject Hammergren's compensation package. They also approved a shareholder proposal to strengthen the executive pay clawback policy. The proposed clawback policy would allow the company to recoup some of the boss’s pay if it is discovered the pay was based on inaccurate financial reporting or misconduct.

McKesson has had to pay out nearly a billion dollars to settle allegations of price fixing and Medicaid fraud. The scandal happened during John Hammergren’s tenure as chief executive. Still, the board richly rewarded him with roughly $50 million a year in total compensation.  Before his pension was trimmed from $159 million, it was likely the highest for any executive in history according to compensation consultants interviewed by the Wall St. Journal.

Perhaps even more shameful than the CEO’s pay is the workers’ pay. Workers at the Lakeland, Fla., distribution center have said their pay is so low that many can't afford to pay for their healthcare. 

Workers at the Lakeland facility voted for Teamster representation nearly two years ago and still don’t have a first contract.  The company has hired union busters and retaliated against workers who support the union. At a rally outside the San Francisco shareholder meeting, Teamster leaders pledged the solidarity of Teamster members throughout North America to support the fight of McKesson’s workers in Florida.

Exorbitant CEO pay is fraud born out of cronyism

Inequality results from very rich people hoarding most of the wealth produced by public and private enterprise, the Huffington Post reminds us in a recent story. Writers Ryan Grim and Mark Gongloff expose the cronyism among corporate boards of directors and CEOs:

The press and popular culture treat this phenomenon almost as if natural forces were guiding it -- an invisible hand dealing out different shares to different people. 

But the hands doing the dealing are in fact quite visible. They belong to the directors of the boards of the major companies in the U.S. and around the globe. One key source of wealth at the very top is the pay of the executives of our largest companies. That pay is approved by corporate directors, who are themselves paid for their service. Many of those directors are also executives at other companies, meaning they sit on both sides of the arrangement.

A couple of examples: Erskine Bowles, a director at Facebook, Norfolk Southern Corp. and Belk:

While he has toured the country over the past several years warning of reckless government spending, he has made millions sitting on the boards of companies that are dramatically underperforming against the market, yet lavishing generous payouts on their respective CEOs -- all with the approval of the board of directors. 

Or one of the Teamsters favorites, McKesson CEO John Hammergren. His company paid nearly $2 billion in legal settlements for ripping off customers. Grim and Gongloff tell us:

...the board of San Francisco drug distributor McKesson doled out extra stock to CEO (and Chairman of the Board, naturally) John Hammergren, arguably leaving him better compensated than he should have been. At nearly $52 million, his pay last year was among the highest in corporate America -- and it was only a third of the $145.2 million he took home in 2011. 

In such cases, shareholders have little recourse. Organizing shareholders into a voting bloc is nearly prohibitively difficult. Even when it does happen, it often still doesn't work. Activist McKesson investors and independent advisers last year launched a campaign to toss out three directors and reject Hammergren's compensation plan. Shareholders voted overwhelmingly to censure Hammergren's pay. But the vote was non-binding.

 Check out your favorite CEO's pay here.

McKesson CEO makes 943 times average workers' pay, wants Social Security cut

Yay! I make 943 times what the average
worker makes at McKesson!

McKesson, the pharmaceutical distribution giant, pays its CEO John Hammergren 943 times what the average McKesson worker makes.

That puts McKesson right behind Walmart when it comes to CEO plundering of a company and abuse of employees.

Walmart CEO Mike Duke makes 6,132 times what the average Walmart worker earns, according to the Huffington Post. Walmart claims it cares for its workers, but it has a funny way of showing it: A Walmart store in Ohio is running a Thanksgiving food drive for its own employees who are so underpaid they need charitable donations to have a holiday dinner. Yum, canned peas!

Hammergren empathizes with his employees the same way Duke does. In McKesson's Lakeland, Fla., warehouse, workers don't earn enough to afford health insurance. The workers voted to join the Teamsters, and now the company is threatening and harassing them in a by-the-book union-busting effort.

Hammergren's signal achievement at McKesson was racking up nearly $1 billion in fines for price-fixing and Medicaid fraud. Now he claims he's concerned about government debt (he's not) and wants to lower it. Presumably he wasn't too worried about contributing to the government debt while he was looting the Treasury.

Hammergren belongs to that uniquely loathsome group, Fix the Debt, which wants to cut your Social Security. The Institute for Policy Studies found three of the Fix the Debt CEOs who want to impoverish millions of retirees have pensions of more than $100 million each. Hammergren  has the largest retirement fortune of the three: $144.3 million.

Another group aiming to throw millions into poverty, the Business Roundtable, is made up of CEOs whose retirement savings are 1,200 times bigger than the average worker's.

The Nation recently exposed the shocking cruelty of Fix the Debt and the Business Roundtable. Reports The Nation:

These CEOs aren’t just trying to short the average American retiree; they’re throwing their own under the bus. While raising alarm about the federal debt, Business Roundtable CEOs have run up massive deficits in their employees’ pension funds. According to the report, ten companies led by members of Business Roundtable have shortfalls in their employee pension funds of between $4.9 and $22.6 billion. The largest of those belongs to General Electric, run by Business Roundtable and Fix the Debt member Jeffrey Immelt, the prospective beneficiary of a $59.3 million retirement fund. 

GE stopped offering traditional pension plans for new employees in 2011, forcing workers to switch to 401(k) plans. Many other companies have shifted the burden of retirement savings to their employees in this way in recent years, and that’s been a significant driver of the retirement crisis. Just 18 percent of workers can expect traditional pensions today, compared with 38 percent in 1985. Instead of getting a fixed check, retirees are at the mercy of the market—making the assurance of Social Security benefits even more essential.

How did we ever let this happen?