Difference between the Prince and us paupers?
moneyrelations :: Jan.22.2008
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It has often been said that the rich don’t play by the same rules as you and me.
Take for example Charles Prince, ex-CEO of Citigroup, the largest bank in the United States. I’m sure he’s heard of subprime seeing as it forced his bank to write down $18 billion in devalued mortgage-backed securities.
But I’m also sure he personally doesn’t have to worry about any of his properties foreclosing. In fact, he’s selling his posh Greenwich, Connecticut property for a cool $6.15 million as reported by Bloomberg. I guess the housing meltdown doesn’t apply to luxury homes.
And it’s not exactly like he’s selling the house because he’s hurting for money. Rather than being fired for the massive losses at Citigroup, he chose to retire (*cough* forced out). In doing so, he walked away with $60 million in stocks and pension benefits.
It must be nice to be able to get that type of package. You know if it were you or I with this kind of screw up, we’d get our butts kicked so hard that our grandchildren would be feeling it.
In my more philosophical moments, I wonder with somewhat aghast admiration how someone can get a gig like that.
Reading Prince’s bio, it seems that he is a bright lawyer if not strictly from a banking background. But honestly, a lot of bright investment bankers got caught up in the subprime meltdown.
It also said that Prince is hard working. Er, I know a lot of hard working people but they don’t get this kind of payout.
Could networking be the key to this type of “success”? Maybe, as he rose to the top by the side of the previous CEO.
Perhaps it is ambition as he “elbowed” his way to the top.
So we have intelligence, work ethic, social skills and personal drive. Other than the paycheck, this guy doesn’t seem so different from the rest of us… I just don’t get it. Why does it seem that the rich play the same game but with different rules?
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Mariam,
I’m not sure your painting the whole picture here… and having been on the receiving end of the “What Value do you bring for the amount of money you get” question… I have one question/answer which would supplement this post…and put this whole mess into perspective… How much profit ,inside and outside of Traveler’s Group/Citigroup, has been generated from decisions and relationships, either directly or indirectly, from Charles Prince when he joined the company in 1996(Travelers Group then merged into Citigroup)?….
I would argue that the rich play a completely different game than the middle class. The rich take calculated risks on a scale and in a frequency that middle class do not. Many of them are also wealth generators.
With respect to Prince, should he have gotten that generous of a package? To you and me probably not but the way employment law works, he’s being compensated for the fact he will never get another gig like Citigroup.
Hey Paul and TMW,
Thanks for the insight guys. Let me go off on a tangent here. This reminds me of pro sports. Guys get really old and they don’t deserve the millions anymore but they get a “retirement” package for loyalty and services rendered to the team when they were young.
@ Paul
Maybe I’m incredibly naive here and I don’t know about “big business” - schmoozing and the intangibles. I am looking strictly at the books and the “profit” Prince brought in. When he took over in Oct. 2003, Citigroup share price was around $47. It dropped to $37.73 on Nov. 2, 2007 (he retired on Nov. 4). If we believe that the market is efficient and all information is factored into share price, he didn’t perform for shareholders.
If he didn’t perform, then that means his compensation was based on past services and a sweetheart deal that he won’t get a nicer gig than that in the future. Believe me, I don’t knock it if you can get it but that is not in the realm of possibility for normal folks.
@ TMW
I like what you said about calculated risks. I’m not too sold on a slow cooking couch potato portfolio on the burner for 30 years. I believe there’s a faster way to generate wealth. But then again, so did these guys with their risky investment vehicles… Being “simple” has it’s advantages! I think there’s a happy medium in between.
Mariam, I don’t believe the current share price reflects the true profits he has brought to the company. I’m not saying he did a great job, I am asking to analyze if he is “really” worth it from all points of view, and if you were a share holder then the answer looks like it would be no, maybe…read on… also don’t forget trading on the way down can be just as profitable as trading on the way up if you know how to play…. now if you were one of the other stakeholders it maybe a different story, as reflected in his severance package. Also keep in mind that he would have been responsible for many decision leading to huge profits before 2003, and that the company “split stocks” 7 times during his tenure at Citigroup..so from my calculations if I started with 10 shares in 1992 I would have 120 shares now… that’s not to bad is it..
Mariam, that’s the question of the ages. Why him, and not you? or me? (I’m not being sarcastic).
That we even ask the question assumes that merit plays a much bigger role than it does.
You alluded to it in your sidecomment about ’schmoozing’ - I’m not going to be as glib as to recite the tired ‘it’s who you know’ line, but, those ‘gigs’ are not about merit (although if you’re lame ass you get screened out fast. except if you’re the president of the country. i digress).
@paul - unless his decisions were THAT brilliant, and only came uniquely from him (no teamwork? no staff who quietly and effectively made it happen day in day out, at a fraction of that compensation), it’s pretty tough to convince me that anyone warrants that kind of coin. I can live with CEOs being part of the market system - ie., you have to pay that kind of money to attract them, but I don’t believe they’re inherently worth that much anymore than I believe a SBUX latte is worth the price.
@ Paul
I understand what you are saying. Shareholders could have made money off of him - the share price did go up to a high of $55.55 during his tenure before crap hit the fan. But if the shareholders made money, was that due to their own expertise or Prince’s? Citigroup repurchased their own shares at an average of $53.24.
@ Nancy
I agree with you. It does involve teamwork. Prince probably was instrumental in the growth of Citigroup. Again, I refer to the pro athletes analogy of the “reitrement package”. He was a great player on the bench and he probably got compensated well for that too. And yes, he probably deserved a shot behind the bench but he failed as CEO.
I like a company that is loyal to its employees but how many times do you have to say thank you in dollar bills?