White Collar Crime Still Pays 10 Years After Dodd-Frank

A decade after the mortgage crisis and subsequent demands for Wall Street reform led to passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, corporate executives are still freely enriching their own salaries through fraud, profiteering and cost-cutting on safety, according to a report released today by Public Citizen. Meanwhile, the decades-long stagnation in worker wages and the decimation of unions is making wealth inequality untenable, especially during the coronavirus pandemic.

One of the key rules mandated under Dodd-Frank addresses unbridled senior banker pay, but it has remained unimplemented - nine years after the deadline Congress set - thanks to lobbying from the banking industry, the report found. Section 956 calls for a ban on all "inappropriate" pay structures that could lead to "excessive risk taking." Meanwhile, money that Congress allocated to bail out bank creditors in 2008 effectively went to bankers, while more than 10 million lost their homes, their jobs and their savings.

"White collar crime pays, and until Congress enacts the rules to change it, we'll continue to see top executives raking in off catastrophes of their own making," said Bartlett Naylor, financial policy advocate at Public Citizen and author of the report. "Meanwhile, it's 2008 all over again. Congress is bailing out Big Business and enriching CEOs while workers scrape by as the economy lurches downward in a pandemic."

Meeting certain performance benchmarks, often pegged to a firm's stock price, is a determining factor in compensation for senior corporate executives. According to the report:

• The 10 senior executives of Bear Stearns and Lehman Brothers who led their respective firms to failure were paid $1.4 billion in the years leading to the 2008 crash, including severance packages.
• AbbieVie's Humira, which has nearly doubled in price since 2014, carries a list price of more than $60,000 per year. Critics claim that AbbVie has acted to keep cheaper versions of the drug off the U.S. market. AbbieVie Chairman and CEO Richard Gonzalez received a total of $22.6 million for his performance in 2017, $4.3 million of which was his cash bonus.
• In 2009, Massey Energy CEO Don Blankenship was paid $17.8 million, a $6.8 million raise over the previous year and almost double his compensation package in 2007. Blankenship's pay was tied to production results - more coal with lower safety costs. The fatal Upper Big Branch coal mine disaster followed in 2010.
• Even with the fatal crashes of Boeing's 737 MAX jets and identification of operational deficiencies that were the result of "cost-saving measures," the board awarded the CEO of Boeing a $62 million final bonus.

Corporations spent well more than the $2.3 trillion in the CARES Act on buy backs of their own stock in recent years, which sparked increases in the stock price to which senior pay is pegged. Meanwhile, almost half of Americans lack even $400 in savings to buy groceries beyond a few weeks during the lockdown, according to the report.

In addition to finally implementing Section 956 of Dodd-Frank, the report recommends a suite of policy solutions that would reform tax laws and corporate pay rules, as well as restore union organizing and bargaining rights.

"Bankers are the poster boys for misbegotten pay," said Lisa Gilbert, executive vice president at Public Citizen. "If we don't implement guardrails on executive compensation and stop incentivizing corporate bad behavior, we haven't learned anything since 2008."

Read the report.