Taking Stock of Corporate America

Stories about corporate scandals dominate the news, and outrage abounds, but post-bailout bonuses aren’t the only travesty being perpetuated upon the American worker. Consider the case of General Electric. In late January, Jeff Immelt, CEO of GE, publicly stated that the company had plenty of cash and that the dividend was safe. Yet only weeks later, the company slashed the dividend, sending the share price plummeting and radically harming its shareholders. Where is the outrage?

For many years, people have relied on General Electric to pay a consistent dividend. Many thousands of people owned the stock for retirement purposes, college funds and other reasons. The dividend cut was no secret when it happened, yet the deceptive remarks made by Mr. Immelt only weeks before render it completely outrageous.

Specifically, how can the leader of the company publicly declare the dividend safe, yet gut it a few weeks later? More to the point, how can shareholders and potential investors believe anything he says in the future? Either Mr. Immelt was lying or he is incompetent. In either case, he should be fired.

Thousands of GE employees also own GE stock, and business leaders have a fiduciary responsibility to both shareholders and employees, as well as to individual investors. Employees who work for corporations need to be able to trust that their leaders are making wise decisions, but more importantly, they need to trust that their leaders are telling the truth.

Today’s workforce includes millions of good, hard-working people who have dedicated years of their lives working to help their companies grow and prosper. Over the years they have been rewarded with deferred compensation in the form of company stock. Typically, the stock is awarded on an annual basis, and usually the employees have to wait years to see the stock appreciate. Furthermore, most people hold on to this stock because their employers encourage them to do so. It gives them a vested interest in the company’s success, and they are told that the stock will increase in value in the future as the company flourishes. This is seemingly all well and good since it creates a solid, loyal employee base with aligned interests.

But the recession of 2007-2009 has created a new scenario. Stocks have tumbled sharply, and employees have seen their personal savings, in the form of company stock, evaporate. Indeed, employees have paid perhaps the biggest price in this downfall. With company stock prices now at historically low levels, employees are able to receive company stock at very attractive prices, thus allowing them to receive substantial rewards in future years when the stock prices rise, which they inevitably will do. This appears to be a much-needed silver lining, but it’s a superficial lining, and here’s why: some large corporations have recently decided to change the plan and pay only deferred cash, rather than company stock, for bonuses.

This is nothing short of criminal. In the case of Bank of America, corporate leaders forced employees to take a portion of their compensation in company stock when the price was $50 per share and overvalued. They put restrictions on employees so that they had to hold the stock for years, and then forced the employees to participate in riding it down to $3 per share, resulting in a 90% loss in their savings. And now, when the stock is cheap and future appreciation opportunities are the highest, Bank of America stops awarding the stock to employees. Now they change the plan.

Corporate leaders who mistreat their employees in this way show their true colors and, at best, make us question if they really care about their employees or their shareholders. At worst, they rip off their employees by using overvalued stock as compensation in the good years, then shut them out and remove stock as a compensation option when it is undervalued.

Now is not the time for bait and switch tactics on the part of corporate managers. It is the time companies need employees to pull together, work harder and bring the company back. And it is the time to unify the millions of employees who will be tasked with returning companies to a state of profitability. Corporate leaders can accomplish this by allowing employees to participate in the company’s future success, not by the proverbial slap in the face that they’ve recently perpetuated upon their workers.

It’s a travesty that tens of thousands of loyal employees have given years of service, taken overvalued company stock as deferred compensation and been asked to participate as an "owner" in the company, only to have that opportunity taken away. We need a new class of business leaders, one that will stand up and take care of their employees. Anything less deserves our outrage.

Brad Bradley is the former CEO of Senderra Funding in Charlotte, North Carolina.  He now runs a private investment company and is a member of the CJS Board of Directors.

The CJS Forum seeks to promote an open exchange of ideas about the relationship between faith, culture, law and public policy. While all the articles are original and written especially for the CJS Forum, they do not necessarily reflect the views of the Center for a Just Society.