[lit-ideas] Re: The spoils of mercenary war
- From: "Lawrence Helm"<lawrencehelm@xxxxxxxxxxxxxx>
- To: lit-ideas@xxxxxxxxxxxxx
- Date: Thu, 20 Sep 2007 15:50:59 +0000
Good grief, Julie. This makes zero sense. We have been building weapons for
the military for years. Back in the early 60s I worked near one of the Douglas
buildings used to build DC-3s which became the famous Gooney Bird of World War
II. The government looked around to see what it could use in the World War II
emergency and got commercial aircraft companies to build war planes and car
makers to build jeeps and tanks. This is just normal common sense. And who
says any of these companies are going to get rich? Douglas never got rich.
They couldn't compete and had to merge with McDonnell in the 60s. Making
things for the government is an extremely risky business. Lots of military
vendors have gone broke over the years because they counted on business they
were expecting and then something went wrong.
All contracts have to compete for budget and if your little company has risked
venture money in hopes of getting some government business and Congress doesn't
approve the program then you are just out of luck. You go belly up or if
you're lucky someone will buy you out or let you merge with them. That is the
industry I worked in for 39 years. I started with Douglas Aircraft in 1959
which had to merge with McDonnell in the 60s and then McDonnell had to merge
with Boeing later on. Neither McDonnell nor Boeing was desperate prior to that
merger, but experts who looked at the post-Cold-War prospects warned that there
wasn't going to be enough contracts in the future to support both companies and
urged them to merge. Little did anyone realize at the time that Islamism was
going to declare us evil and attack us. The only nation that anyone even
vaguely worried about in those days was China.
And what does this mean: "much of the war effort is being outsourced by an
administration that believes private companies do things better than the public
sector."? What "public sector is Brush talking about? Did he forget we
aren't a Communist or a Welfare State. We don't have a "public sector" to
build our weapons. Years and years and years ago, long before Bush Jr ever
thought of running for Governor of Texas, it was discovered that competing
companies could do things much more efficiently and cheaply than public
agencies. That's one of the reasons we won the Cold War, and look at the Post
Office as an example. It would be out of business today if tax money wasn't
keeping it running, but in the case of military weaponry, the policy for years
and years has been that the government (in time of need) first looks around in
private industry to see what's available and if there is anything, then it buys
it. If there isn't anything it wants, then it sends out IFBs. (Invitations
For Bid) or RFPs (Requests for Proposal). If there is an emergency as in the
unprovoked attack by representatives of the Islamist movement, then it seeks
special dispensation to avoid this process. There was even less competition
back in World War II.
Now a separate subject is the pay that CEOs get. That discussion has also been
going on for ages, and Michael Brush is probably jealous. Unfortunately all
CEOs get huge salaries and if you want the best ones leading companies that
supply you with your weapons, then you have to tolerate their salaries. They
aren't going to build your weapons if they can get higher salaries working for
General Foods or Chrysler. I don't think CEO's, ball players, or Hollywood
actors should be paid such huge salaries, but if anyone figures out a way to
cut any of these salaries, let's start with Hollywood.
Another thing, a lot of CEOs have incentive clauses in their contracts. If
they bring in substantial new business, their salaries go up accordingly. So
some of these contracts could indeed have been a windfall for them, but I have
seen a lot of windfalls over the years. Getting a contract you were bidding on
is a windfall. But CEOs have been getting rich for years and years -- as have
Hollywood actors -- now there is a scandal.
Lawrence, outraged over the high pay Hollywood actors receive -- and dumb
articles.
------------Original Message------------
From: "Julie Krueger" <juliereneb@xxxxxxxxx>
To: lit-ideas@xxxxxxxxxxxxx
Date: Thu, Sep-20-2007 6:30 AM
Subject: [lit-ideas] The spoils of mercenary war
I rarely post an entire article that is this long. There was nothing in it I
felt I could cut. A couple lines pulled from it simply wouldn't do. (And #3
at the end merits a "ya think?")
Julie Krueger
War means a windfall for CEOs
President Bush's military buildup and the conflict in Iraq have meant soaring
profits for defense contractors and big paychecks for CEOs. But should we be
concerned?
By Michael Brush
While policymakers in Washington wrangle over how much progress we've made in
Iraq, one thing is clear: The war on terror is making some people rich.
President Bush's military buildup has caused defense-contractor revenue to
double, triple and even more during the past five years, and their executives
have reaped huge bonuses and stock windfalls as the companies' share prices
have jumped.
Take a look:
CEOs at top defense contractors have reaped annual pay gains of 200% to 688% in
the years since the Sept. 11, 2001, terror attacks.
The chief executives at the seven defense contractors whose bosses made the
most pocketed nearly a half-billion dollars from 2002 through last year.
The CEOs made an average of $12.4 million a year, easily more than the average
corporate chief. Since the start of the war, CEOs at defense contractors such
General Dynamics (GD, news , msgs), Halliburton (HAL , news, msgs) and Oshkosh
Truck (OSK, news, msgs) have made, on average, more in four days than what a
top general makes in a whole year, or $187,390.
Defense contractor CEOs are enjoying these big rewards partly because much of
the war effort is being outsourced by an administration that believes private
companies do things better than the public sector, say researchers at the
Institute for Policy Studies and United for a Fair Economy.
"In the most privatized war in history, lucrative opportunities abound for
chief executives of defense contractors," says Sarah Anderson of the Institute
for Policy Studies.
$19.5 million a year
General Dynamics CEO Nicholas Chabraja tops the list of defense-contractor
chiefs who have made the most money during the 2002-2006 defense buildup.
Between 2002 and 2006, he pocketed $97.9 million, or an average of $19.6
million a year.
Sales at General Dynamics increased 76% from 2002 to 2006, with significant
help from Department of Defense spending. Overall sales increased to $24.1
billion from $13.6 billion, and at least a third of that increase came from
higher Department of Defense spending.
Those contract awards helped General Dynamics stock more than double to $80 a
share from $39 at the start of 2002. In the same time frame, the S&P 500 Index
($INX) has advanced 28%. The big stock advance allowed Chabraja to collect
$21.5 million by cashing out stock options last year. General Dynamics, which
supplies technology that goes into combat systems used by several branches of
the military, was the fourth-largest Defense Department contractor last year.
David Lesar at Halliburton made $79.8 million, or nearly $16 million a year,
from 2002-2006. During this time, Defense Department revenue at his company
grew from just 4% in 2001 to 40% in 2004. That year, the company got nearly $8
billion in defense contracts out of total revenue of $19.9 billion.
Continued: Who earned the most
Virtually all of that money was for logistical support, engineering and
construction services provided by Halliburton's Kellogg, Brown and Root
division, which was spun out earlier this year to trade as KBR Inc. (KBR, news,
msgs). Those contracts helped drive Halliburton stock from $5 at the start of
2002 to more than $40 last year. The gains allowed Lesar to reap $13.6 million
just by cashing in options last year, and $14.7 million the year before.
Lockheed Martin Chief Executives Vance Coffman and Robert Stevens together
earned $64.8 million from 2002 to 2006. Stevens has also realized more than $19
million so far this year by cashing in options. He replaced Coffman as CEO in
August 2004.
Lockheed Martin's Defense Department-related revenue increased from $17 billion
in 2002 to $26.6 billion in 2006, a 57% increase. The stock has more than
doubled to $100 from $47 at the start of 2002. Lockheed Martin was the top
Defense Department contractor last year.
Talk back: What's your view on companies that profit from the Iraq war?
For the rest of the highest-paid defense contractors, see the chart below
summing up the pay of those who earned the most. To calculate pay levels, I
examined company documents and the Institute for Policy Studies CEO pay
database. Pay includes salary, bonus, value realized on exercising and vesting
stock options, nonequity incentive plan compensation, long-term incentive stock
and "other" pay. Companies had to get more than 40% of their revenue from the
Defense Department in one of the past three years to make the list.
Highest defense contractor CEO pay 2002-2006 (in millions)
CompanyCEO 20022003200420052006Total pay '02-'06 Average annual pay '02-'06
General Dynamics (GD, news, msgs)Nicholas
Chabraja$15.25$9.27$31.53$9.85$32.01$97.90$19.58
Halliburton (HAL, news , msgs)David
Lesar$7.30$4.17$11.43$26.60$30.33$79.83$15.97
Lockheed Martin (LMT, news, msgs)Vance Coffman/Robert
Stevens$25.34$13.70$6.73$4.50$14.51$64.77$12.95
Boeing (BA, news, msgs)*W. James McNerney
Jr.$4.15$3.81$3.99$28.43$15.62$55.99$11.20
Alliant Techsystems (ATK, news, msgs)Daniel
Murphy$10.53$16.77$1.87$1.71$15.85$46.73$9.35
Engineered Support Systems**Gerald Potthoff$1.61$3.54$39.73 $0.72--$45.61$11.40
Oshkosh Truck ( OSK, news, msgs)Robert Bohn$8.74$9.13$3.77$18.15$3.86$43.64$8.73
*McNerney took over in 2005. Before that, pay covers interim CEO James Bell and
CEOs Phil Condit and Harry Stonecipher.
**Does not include pay for 2006 because company was taken over.
Sources: Institute for Policy Studies CEO pay database and analysis by Michael
Brush of company filings.
The biggest pay raises
While CEOs at the biggest defense contractors naturally got the most pay, those
at smaller companies saw some of the biggest increases.
Robert Bohn, chief of Oshkosh Truck, which sells military vehicles, has seen
his pay go up nearly eightfold. He earned an average of $1.1 million in
2000-2001, but that shot up to $8.7 million a year on average for 2002-2006.
Bohn had his best year in 2005, when he made more than $18 million -- chiefly
by cashing in options for a net gain of $14.7 million after his company's stock
tripled from the start of 2002.
Oshkosh Truck has seen better profits in part because of a big increase in
Defense Department contracts. Back in 2002, the company got 35% of its revenue
from Defense Department contracts. That rose to 45% of its $2.26 billion in
revenue in 2004 and 50% of its $2.96 billion revenue in 2005. Oshkosh Truck got
$4.7 billion in Defense Department contract revenue during 2002-2006, or 38% of
its revenue for that time. The contract flow has helped propel Oshkosh Truck
stock to $55 a share recently, from $12 at the start of 2002.
Continued: 6 others who saw big gains
The next biggest beneficiary in terms of pay gains was Joseph Kampf, chief
executive of Anteon International. The company, which was bought by General
Dynamics in mid-2006, provides and maintains information systems, and carries
out intelligence and high-tech simulated military training.
Anteon saw its Defense Department revenue almost triple to $939 million last
year from $317 million in 2000.
The company's good fortune helped Kampf increase his annual from an average of
$643,000 a year in 2000-2001 to $4.2 million a year on average for 2002-2005.
He had a bonanza year in 2005, when he netted $7.8 million by cashing out
options and earned $9 million all told.
Talk back: What's your view on companies that profit from the Iraq war?
For the other five biggest winners in terms of pay gains, see the list below.
CEOs had to work at companies that got more than 40% of their revenue from
Defense Department contracts in one of the past three years to make this list.
A spokesman for Edo Corp. (EDO, news, msgs) says CEO James Smith had a
relatively modest level of pay, or $193,000, when he took the top position at
two companies that merged in 2000 to form Edo. The stock has advanced in part
because of a turnaround Smith oversaw, the spokesman says, and his higher
income in recent years rewarded him for the turnaround.
Defense contractor CEO pay 2002-2006 versus 2000-2001 (in millions)CompanyCEO
Average annual pay '00-'01Average annual pay '02-'06 Annual pay increase,
'02-'06 from '00-'01
Oshkosh Truck ( OSK, news, msgs)Robert Bohn$1.11$8.73688%
Anteon International*Joseph Kampf$0.64$4.25560%
Alliant Techsystems (ATK, news, msgs)David Miller/Daniel Murphy$2.11$9.35343%
Armor Holding**Jonathan Spiller/Warren Kanders$1.72$6.84298%
L-3 Communications (LLL, news, msgs)***Frank Lanza/Michael
Strianese$1.38$4.21205%
Edo Corp. (EDO, news, msgs)James Smith$0.54$1.38154%
General Dynamics ( GD, news, msgs)Nicholas Chabraja$7.92$19.58147%
Stewart and Stevenson Services*Max Lukens$0.58$1.42143%
Pay includes salary, bonus, value realized on exercising and vesting stock
options, nonequity incentive plan compensation, long-term incentive stock and
"other" pay.
*Does not include pay for 2006 because company was taken over.
**Spiller's pay for 2000-2002, Kanders' thereafter. The company has also been
taken over recently.
***Strianese took over in June 2006.
Sources: Institute for Policy Studies CEO pay database and company filings
Good connections
It may come as no surprise that many of these companies where top managers have
done the best also have board members or executives with a military background.
Alliant Techsystems (ATK, news, msgs) Chief Executive Daniel Murphy retired
from the Navy with the rank of vice admiral in 2000, following a 30-year
career. A director, Martin Faga, served in the Department of Defense as
assistant secretary of the Air Force for space.
Oshkosh director Frederick Franks was an Army commander during Operation Desert
Storm and retired from the Army in 1994. L3 Communications ( LLL, news, msgs)
Director John Shalikashvili served as chairman of the Joint Chiefs of Staff
from 1993 to 1997. And General Dynamics Director Paul Kaminski served as
undersecretary of the Department of Defense for Acquisition and Technology from
1994 to 1997.
But wait a minute. If the stocks of all these defense contractors have done so
well, and they have, then why begrudge the CEOs their pay? A 2006 study by the
Institute for Policy Studies and United for a Fair Economy titled "Executive
Excess 2006: Defense and Oil Executives Cash in on Conflict " cites three
reasons:
Extravagant executive compensation at these companies isn't in keeping with the
spirit of shared sacrifice that our country has always called for in time of
war.
Those rich pay levels may drain talent from the military services.
Third, high profits and above-average pay for execs at defense contractors
creates the risk -- or at least the appearance -- that a war might be prolonged
for profit motives
The study's conclusion is this: "The vast potential for war profiteering should
be of even greater concern during this war because of the extent to which the
war and the reconstruction effort have been privatized."
At the time of publication, Michael Brush did not own or control shares of
companies mentioned in this column.
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