Executive Pay, Backdated Options, and Ethics

I've been a little confused by the Wall Street Journal's mixed messages on the recent issues of executive pay and backdated options. As you may have heard, many companies got into trouble recently for backdating stock options for its executives -- that is, lying about when the options were granted, so that the executives got the most money possible out of the grant.

At first, the Journal was out in front in breaking the story: their own analysts had crunched the numbers of various stock option grants and determined, Freakonomics-style, that many executives had been too "lucky" with their options dates, and that overwhelming statistical evidence suggested they had cheated. After the story ran, the SEC followed up with their own investigations. Yup, they had cheated. Some CEOs and board members were fired. Looked like a good chance to run some fatcats out on a rail. The Wall Street Journal has generally been good about standing up for the rights of the investor, and makes a fuss about overpaid executives on a regular basis.

But then Steve Jobs, the darling CEO of the darling Apple, was caught with his hand in the cookie jar as well. And not just a little in . . . a lot in. There were some middle men at Apple to take the fall for him, but at Pixar he was very directly involved at setting his options dates. Suddenly the mood changed. Nobody wanted to run Steve out on a rail. He was too popular. We love The Incredibles on our iPods too much. And, unlike so many CEOSs, whose mediocre performance hardly seemed to warrent the millions of dollars they were paid, Steve Jobs was clearly vital to his company. And, on balance, investors would rather keep their brilliant but slightly ethics-challenged CEO than lose huge chunks of stockholder value if he's sent down the river.

The Wall Street Journal editorial page suddenly joined in the excuse-making. "Welllllllll . . . the stock options were only a tiny portion of his overall pay. What's a million dollars more or less to Steve Jobs? That's pocket change to him. The board knew what it was doing, the board can pay him whatever it likes, let's not make too big a deal out this."

The incident is akin to finding out that a close and trusted associate, someone you've known for years and welcomed into your home regularly, stole a magnet off your refrigerator. On the one hand, you don't want to destroy a close friendship over a nearly worthless refrigerator magnet. On the other hand, goddammit, he stole something from my house. What else is he taking from me? And worse yet, do I want to hang around someone whose sense of entitlement is so great that they just help themselves to whatever they want, big or small, with no regard to whether it's right or wrong?

I have seen that same mentality prevail with certain rich people. My mother once noted that her richest clients for her landscaping business were often the ones who were the slowest to pay. "For some reason they seem to think that because they have so much, paying me is a trivial matter beneath their attention." Like a celebrity that walks into the bar and everyone jumps up to buy them a drink, they have somehow come to believe that they are so special that the rules don't apply to them anymore.

I don't think Steve Jobs should be fired. It was a small part of his compensation. (And, if you must know, I was the person who stole a refrigerator magnet from a friend's house. But that's another story.) But what he did was wrong, wrong, wrong, and we need to keep pointing that out. Rules matter. Honesty matters.