Whistleblowers Are Underpaid And Under Appreciated

Washington, DC, attorney Steven N. Berk wrote the following in his blog, The Corporate Observer. He has generously given permission for us to repost it here:

To many, whistleblowers are akin to lottery winners; just plain lucky. If you complain enough (like buying plenty of lottery tickets) you may eventually get lucky. To others, whistleblowers are disloyal, greedy and opportunistic. Fueling these characterizations is surely a public perception that whistleblowers obtain huge awards for little or no work.

I am here to argue that perception is wrong. If whistleblowers’ compensation is measured against their contribution to the common good and compared to let’s say, the Hollywood movie star du jour or the corporate executive that, after a losing year, convinces the Board of Directors (wink nod) to provide a pay package worth tens of millions, whistleblowers are a bargain. Yes a bargain. If anything they are under compensated.

First, she compensates her lawyers with a third of her award, reducing the value to her to $62 million. Second, she must immediately pay taxes but we’re not going to even factor that in. Significantly, Ms. Eckard did not prevail in this matter in a manner of days, weeks or months. It was years. Years spent in uncertainty both professionally and surely financially. She began her journey in 2002, so any monies she receives are for a ten year period, which puts her at $6.2 million per year (about the same as an above average – but not an all-star – shooting guard in the NBA).

A nice salary, no doubt, but lets compare that to the billions in compensation going to pharmaceutical and other executives.

First, Glaxo Smith Kline earned approximately $31 billion in gross profit in 2011 (according to their annual report). Eckard’s award is small pebbles by comparison.

Second, with that her measly $6.2 million, she wouldn’t even come close to cracking the top ten salaries of CEOs in the pharmaceutical industry:

  1. Bill Weldon – J&J – $28.7M
  2. Daniel Vasella – Novartis – $27M
  3. Miles White – Abbott- $25.6M
  4. Jeffrey Kindler – Pfizer- $24.7M
  5. Richard Clark – Merck – $24.6M
  6. Robert Coury – Mylan – $22.9M
  7. Kevin Sharer – Amgen – $21.1M
  8. James Mullen – Biogen Idec – $20M
  9. John Lechleiter – Eli Lilly – $16.5M
  10. John Martin – Gilead Sciences – $14.2M

Non-Producers CEOs
It’s also instructive to look at salaries outside the pharmaceutical industry to put in a broader perspective the value achieved by Ms. Eckard.

Our compensation hero, Vikram Pandit, like many other executives, made millions ($7.72 to be exact) by losing money for his shareholders: Citi stock dropped 44% in 2011

Albert Pujols is being paid $12 million/year and striking out at a record pace. And Lady Gaga, love her or hate her, according to Forbes, raked in $52 million.

And, by the way, Ms. Eckard exposed dangerous practices in GSK’s manufacturing plants that allowed drugs of different strengths and types to be bottled together. In all likelihood, she saved hundreds of lives. Has anyone else on this list done that?

The Case of Kyle Lagow: Example 2
Consider Kyle Lagow, an appraisal manager for Countrywide, the infamous mortgage subsidiary of Bank of America. Mr. Lagow earned $14.5 million in exchange for information that led to a $1 billion settlement between Bank of America and the federal government as well as a $25 billion settlement between the entire industry and various states. A nice piece of work indeed.

Lagow worked at Countrywide for four years – from 2004 to 2008. He didn’t even settle his claims and iron out an award until 2012! That’s 8 years of recognizing illegal practices, reporting them, fighting for what’s right, and hoping for the possibility of an award but certainly having no guarantees. What’s more, Lagow helped uncover fraud that contributed to the second worst financial collapse in history and derailed an entire economy. Still, despite the gravity of the issues he faced and the behemoth defendant in Bank of America, Lagow soldiered on alone. In return, he earned approximately $1.8 million per year – before he pays his attorneys and the IRS.

That’s it? $1.8 million for uncovering a scheme that cost the government billions of dollars and led to thousands of unnecessary foreclosures? Brian Moynihan, CEO of Bank of America was paid more than $10 million in his fear year on the job in 2011. This despite the Countrywide fiasco and a falling stock price.

Do you know how far back you’d have to go to find a star baseball player making so little money per year? 1979. That’s the year Nolan Ryan became the first player to average more than $1 million per year. And oh, by the way, can you guess how much Novak Djokovic won as U.S. Open champion last year? $1.8 million exactly – in two weeks. Djokovic is a great player, to be sure, but he didn’t exactly save thousands from foreclosure and help remedy one of the greatest financial crimes in history.

The True Value of Whistleblowers
When we look at the true societal value added by whistleblowers as well as the years of work and determination it takes to secure a whistleblower award, there can be no reasonable complaint about the amounts of the awards. Even Cheryl Eckard, among the richest of whistleblowers, is not overpaid – certainly not when you take a closer look at the facts.

Accordingly, efforts directly or indirectly to curb their compensation should be thwarted. And if we are going to look at compensation, we may as well look at the pay doled out to CEOs, entertainment and sports figures. My choice would be to cap the vast wealth (in the billions) of hedge fund managers who create nothing and instead contribute to risk, turbulence and the seeds of financial instability by taking hugely leveraged positions on anything from gold to pine cones – but that’s a story for another day. For today, it’s enough to remember that despite conventional wisdom, whistleblowers are not overpaid.

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