Elmer Smith: Failed execs get the lollipop, laid-off workers get the stick

SCENE ONE opens in a congressional hearing room where Calif. Rep. Henry Waxman questions Richard Fuld, former CEO of what's left of Lehman Brothers.

"So, your company is now bankrupt. Our economy is in a state of crisis, but you keep getting $480 million," Waxman begins.

Fuld pauses thoughtfully before leaning into the microphone to correct the record. With the economy in the tank and all, he says, his compensation since 2002 is barely $250 million.

"Still a large number," he concedes.

He's right! Largely numb is how we find laid-off Lehman Brothers workers after learning in a form letter that the severance pay that they had been promised is a luxury their former employer can no longer afford. "Lehman Brothers is unfortunately no longer able to provide the salary continuation," the letter reads.

Welcome to the parallel universe. It's a place where the pawns and plutocrats have little in common except body parts, even though they all spring from the same gene pool - sort of like men and apes.

What Waxman and those laid-off workers don't understand is that value is calculated in very different ways in the salons of power. They'd need an exec-to-English dictionary to decipher it.

Where the laid-off workers get paychecks, the execs get compensation packages.

The paycheck system is as simple as the well-meaning workers who earn them. A rate is set based on the kind of work they do. Then the rate is multiplied by the number of hours they work.

Compensation packages are more complex. They include cash payments called salary and bonuses, as well as various stock options and stuff that might bust a little guy's head if he thought about it too long.

Within those categories are variations that help explain why a guy like Fuld, whose company had to be rescued from his incompetence by the federal government, is entitled to more compensation.

For instance, stock options are sometimes backdated so that when an exec decides to exercise them, he can collect the difference between current value and their value on a date they pick out of a hat.

They don't get form letters. Their "salary continuations" are covered in the compensation package.

Then there are those golden parachutes. This is a key difference between the current financial mess and the crash of 1929.

In '29, if you walked along Wall Street, you risked getting squashed by an exec who had just done a half-gainer off one of those towers of commerce.

It was the splat heard 'round the world.

These new guys land softer than a mosquito on a cotton ball. It's all spelled out up front.

It's called a "golden life jacket." That's the one in which an exec is offered an incentive to stay on as a manager after another company buys his company out.

Part of Lehman Brothers business was bought at fire-sale prices by companies called Bain Capital and Hellman & Friedman. They have set aside $400 million for retention bonuses if bankruptcy judges allow it. Why wouldn't they? It's the local

custom.

I know. You're thinking, if they have $400 million to provide bonuses for selected execs, how come there's not $400 a week for laid-off workers?

Here again, you can't expect people who earn paychecks to understand compensation.

These guys are so valuable that they are offered huge severance deals that they can get even if they walk away from the job in a matter of months.

Robert Willumstad was eligible for a $22 million severance package after less than a year as CEO of AIG, the insurance giant that remains afloat only because of a $124 billion government

bailout.

But, to his credit, he turned it down flat, choosing to make do with the tens of millions he walked away with when he left CitiGroup in 2005.

Don't even try to understand it. Most of us will never breach the border between the parallel universes. The next generation of execs will be the product of careful inbreeding. *

Send e-mail to smithel@phillynews.com or call 215-854-2512. For recent columns: http://go.philly.com/smith