The BCBSM Stone Wall

A law firm that assists clients with public benefits applications frequently runs into boneheaded bureaucrats who consider it their mission to make it as difficult as possible for anyone outside the organization to receive the services they are due. Usually, a supervisor or a representative at a different office or branch can be found who will be more cooperative. Seldom does the law firm find itself trying to transact business with an entire organization of obstinate, discourteous boneheads. Blue Cross Blue Shield of Michigan (BCBSM) is such an organization.

Trying to procure a paper premium statement can take weeks if the insured person is not able to call BCBSM, hang on the line for 30 minutes or more, and explain what is wanted. When the insured is represented by an agent under a durable power of attorney, a retained attorney, or the spouse who pays the premiums, getting a paper premium statement usually involves a lengthy telephone campaign to get permission to mail or fax the power of attorney. Then it is necessary to wait for days for some sort of response.

Bear in mind that the information sought is not confidential medical records covered by HIPAA. It is just a paper premium statement that could be sent to the insured in the normal course of business.

Recently, a client told us that she had been trying for weeks to get a premium statement from BCBSM. She was told that a company release of information would be sent to her. It never came.

Because of past experience, I directed my request for a premium statement to Jeffrey Rumley, General Counsel of BCBSM. I attached the power of attorney signed by the insured appointing his agent. I also attached the release of information and appointment of representative giving me the right to request information and represent the insured. That document was signed by the agent. Nearly every bank, insurance company, real estate agent, brokerage firm, and government agency with which my office deals would honor a request backed up with a power of attorney and release of information. Not BCBSM!

Two days after emailing Mr. Rumley, my office received a call from a BCBSM representative. She stated that BCBSM does not recognize any power of attorney drawn up by an attorney — which is asinine. She stated that to get any information, the insured, who is in a nursing home and incapacitated, must sign a request on BCBSM’s form.

Furthermore, she stated that BCBSM would not fax the form, it would have to be mailed. There was no explanation of why they could not fax the form to my office, despite the fact that it would have no personal information of the insured – or anyone else – on it.

After a second emailed letter to Mr. Rumley, an assistant general counsel finally provided a link to procure the form for an agent under a power of attorney and a dizzying array of similar forms. The forms are, and have been, available to anyone with online access. Why the BCBSM representative was so coy is a mystery.

For BCBSM, which recently inflicted double-digit premium increases on its customers, to make it so difficult for people in nursing homes to get information needed to apply for Medicaid is appalling. There are thousands of BCBSM insureds receiving long-term care. There is no excuse for making it an excruciating ordeal to get premium verification for Department of Health and Human Services. Instead of erecting a bureaucratic brick wall, it should be possible to request that verification be sent to the Medicaid agency with a telephone call:

BCBSM: How may I help you?

Caller: I am applying for Medicaid for my mother, Suzanne Sugerbaker, and I would like insurance coverage and premium verification to give the worker.

BCBSM: We can send that directly to the Medicaid agency if you give me Suzanne’s Blue Cross member number and the case number assigned by Medicaid or her Social Security Number.

Caller: Suzanne’s Blue Cross member number is IDK313250075. Her Medicaid number is 8182850205.

BCBSM: Thanks, I’m sending the information right now.

This should not be difficult. If Google knows that I went to Wendy’s at noon and ate a Double-Double Baconater, then went to Walgreen’s at 2:24 p.m. and bought Nexium, how hard could it be for an IT juggernaut like BCBSM to verify a member’s premium and coverage to a government agency through a data link? I’ll bet that BCBSM already keeps track of how many Baconaters I eat.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2017 John B. Payne, Attorney


A Bureaucratic Absurdity

From time to time, one hears the time to wait for a delivery or answer expressed in “business hours.” What? A nurse recently said, “You will receive the test results in 48 to 72 business hours.” Does this mean two to three days or six to nine days? The latter if one assumes that a “business day” is eight hours. What addle-brained bureaucrat came up with this?bureaucracy-park

If it is an attempt to be more precise, it is horribly misguided. Two to three business days from Thursday is crystal clear. It translates into Monday or Tuesday, unless Friday or Monday is a holiday. If expressed as “48 to 72 business hours,” does that mean two to three days if the business is open 24 hours a day, four to six days if the business is open 12 hours a day, or six to nine days if the business is open 9:00 a.m. to 5:00 p.m? Why don’t they express the waiting period in a measure of time that is precise and readily understandable, such as Jovian lunar months or mayfly generations?

In terms of sheer silliness, this rivals the pointless 67-page Pennsylvania regulation on real estate transfers described in “Pennsylvania Commonwealth Bureaucracy.” It’s the kind of false precision sprouted in the fever dream of a pencil-necked desk jockey that gives bureaucracy a bad name.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Medicaid Processing Delays Hurt Applicants and Nursing Homes

Kansas Public Radio reports that Kansas nursing homes are being financially hamstrung by six- to eight-month delays in Medicaid approvals. If they accept residents who have not been approved for Medicaid, they may be stuck caring for them for months without being paid. As a result, nursing homes try to avoid accepting prospective residents unless they are already approved for Medicaid or have sufficient funds to pay for their own care. This makes it tough for families to place their loved ones where they can be properly cared for.

Residents of nursing homes who are pending Medicaid cannot be required to pay for their care at the rate charged residents who are paying privately. In most states, nursing homes charge upwards of $8,000 per month for care. However, Medicaid applicants and recipients do not pay more than their income – usually less than $2,000 per month. A six-month delay leaves the nursing home out on a limb for $36,000 or more per resident. Add to this the possibility that the resident may be determined ineligible for Medicaid due to a small asset discovered late in the application process and it is easy to see why Kansas nursing home operators are as nervous as Col. Sanders at a PETA rally.

The Kansas problem resulted from two bone-headed bureaucratic decisions that were not quite as catastrophic as Flint’s switch in water sources, but equally lame. The decisions also exacerbated serious fiscal and administrative problems in the state Medicaid program, which Gov. Sam “Trickle-down” Brownback privatized in 2013.  Last July the state made a botched switch to new eligibility determination software and this January – while the software change had the application process tied up in knots – eligibility processing was moved from the Department for Children and Families to the Kansas Department of Health and Environment. The unreasonable delays are not likely to end soon.

Michigan Medicaid pulled an equivalent blunder two years ago when it decreed that all applications and eligibility documents for the whole state should be transmitted to a Lansing fax number. The idea was to make the eligibility process paperless, but the software used was woefully inadequate to processing the volume of documents coming in. The system choked on the massive flow of data and much of what was sent in got lost in a virtual labyrinth for months. As later happened in Kansas, thousands of Medicaid applicants in nursing homes were subjected to months of delay or were wrongfully denied. To make matters worse, the “smart” system devised to sort the pages sent in did not recognize the types of verification it was seeing. Therefore, carefully organized applications with dozens of attachments went to the workers a jumbled mess.

Why can governors and high-level state administrators not understand that effecting massive changes in state government functions is not as easy as modifying the organizational chart? They get bright ideas and implement them without proper planning. In some cases, they move agencies between departments to reward friends or punish opponents. In others, they make changes for no more significant reason than that it makes the chart appear more balanced. Changing the names of departments and other organizational components is a favorite amusement.

The problem is that governors do not want to hear bad news and they certainly do not want to hear that their ideas are not brilliant. Michigan governor Rick “Let Them Drink Pepsi” Snyder will probably duck blame for the Flint water crisis because he was not told about it directly. The responsible parties in the Department of Environmental Quality and Department of Health and Human Services knew better than to inform him of the aquatic catastrophe.

Assume that a governor says, “These school shootings make me wonder if we shouldn’t arm safety-patrol members.” His chief-of-staff and other aides will know better than to ask if he knows that safety-patrols are made up of 10-year-old fifth-graders. They will know that what he wants to see is feasibility studies proving that it is a great idea.  Blasé disregard of responsible management is unfortunately the rule, rather than the exception. It is the reason our state governments are always lurching from crisis to crisis. That, and the tendency of voters to elect politicians who are neither smarter nor more perceptive than a fifth-grader.

John B. Payne, Attorney
Garrison LawHouse, P.C.
1800 Grindley Park Street, Suite 6
Dearborn, Michigan 48124
313 563 4900

Pittsburgh Office:
9853 Old Perry Highway
Wexford, Pennsylvania 15090
800 220 7200

Stasis on Plane Tracking

In “Dumber and Dumbest — Where is Flight MH370?,” I argued that it is criminal stupidity for airlines to fail to track their planes. The technology for satellite tracking of jetliners exists today. Laptops, smartphones and many other devices can be located by their wireless connections. Allowing planes to disappear, simply because the flight crew, or some hostile party, turned off the radio makes about as much sense as taping a Post-It with the combination to the outside of a safe. Despite the ease of corrective action, a year after Flight MH370 disappeared, nothing is being done.

In “ICAO to Address Delays in Universal Airliner-Tracking Efforts,” on February 1, 2015, the Wall Street Journal reported that the International Civil Aviation Organization, a United Nations specialized agency, intended to demand aircraft tracking at the Second High-level Safety Conference (HLSC2015) February 2-5, 2015 at ICAO Headquarters, in Montréal, Canada. However, when the meeting adjourned it was reported that the conferees expressed their commitment to “promptly implementing the Global Aeronautical Distress and Safety System (GADSS) concepts of operations, including normal tracking every fifteen minutes and distress tracking every minute;” and to “finalize the GADSS concept for global tracking and lead the conduct of an implementation initiative using existing technologies.” In other words, they promised to promptly start thinking about a plan to track airliners.

In the language of international conferring, “promptly” means absolutely nothing without a deadline. Conferees use “promptly” the way Millennials use “like.” It has no effect except to lower the signal-to-noise ratio. The other clue that nothing will be done is the phrase “using existing technologies.” By definition, “existing technologies” are not providing real-time tracking of jetliners and cargo planes. Therefore, nothing will be done until new technologies come on line, if a340

Why is there no progress? The International Air Transport Association, the trade association of airlines, opposes real-time tracking of airplanes and has stood in the way. According to The Telegraph, in “Mapped: One Year on from Mh370, All the Planes Which Have Disappeared since 1948,” on April 5, 2015, there have been 105 passenger-flight disappearances causing 1,615 fatalities since 1948.  Despite this, the IATA considers it more cost-effective to lose a couple of planes a year than to spend $25,000 to $50,000 per plane (0.1% to 0.5% of the cost of a new jetliner) to outfit them for continuous satellite tracking.

The airlines could start by building-in the capacity for plane tracking in new airplane purchases and communication overhauls. An incremental approach like that would not be prohibitively expensive and the increased use would help to bring down the cost of the system. That would be a huge improvement over a commitment to “promptly implementing” global tracking with “existing technologies.”

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2015 John B. Payne, Attorney

Open Letter to Governor Snyder About Email Malfeasance

Dear Governor Snyder:

You campaign on your business acumen, but your business leadership is not reflected in the operation of Department of Human Services.  Medicaid applications for nursing home residents can languish for months, despite the urgency of determining eligibility.  The 45-day standard of promptness is like “fresh fish” in a supermarket.  It is advertised as “fresh fish” and they say that the fish they are selling is fresh, but you sure as Hell don’t see it very often.

When families and facilities have unreasonably long waits for eligibility to be determined, both sides are injured.  Families are traumatized by rejections for residency and eviction threats.  They are often forced into undesirable placements.  Care at the facilities is impaired due to lack of payment for residents.  Facilities try to deal with the problem by illegally turning away “Medicaid-pending” applicants.

DHS is understaffed due to budget cuts, but that only goes so far as an excuse for failing to perform the mission.  Furthermore, there is no uniformity in how various offices handle the workload.  In some offices, cases languish for months, ignored by workers who claim they are unable to get to them.  In other offices workers subject applications to withering examination, demanding five years of bank statements and flyspecking the transactions to punish the applicant for giving her grandchildren birthday presents or tithing.

Department of Human Services workers have no respect for deadlines, but they will deny an application if the applicant misses by a day the due date for submitting a document.  This is especially problematic when a request for verification, which is supposed to have a ten-day window, is not mailed for three or four days after it is dated.  Applicants often have as little as three days to provide a document.

All of the above is “business as usual” at DHS.  If a law firm blew off deadlines and mishandled paperwork they way DHS does, the lawyers would lose their licenses to practice law.  If a hospital operated that way, it would be promptly lose its accreditation.  However, that is not what this letter is about.

This law firm has been handling Medicaid matters for 25 years, but recent problems with emailed and faxed communications set a new standard of bureaucratic malfeasance.  After months of delays, waiting for two particular workers to respond to emailed documents, it was determined that those workers had left the agency months before and nothing was done with their email.  A denial with one worker’s name and contact information on it was mailed out in August, but the worker had left the agency in April.

The email accounts were not even terminated, so there was no notice from the email server to let the sender know the mail was not received.  It was as if the worker had walked off the job and all subsequent mail was shredded.

Email is now official correspondence.  Staff often email requests for verification and other important notices.  For DHS to fail to have a terminated worker’s email forwarded to a successor worker or a clerical worker for forwarding to the proper person is unpardonable.  It especially egregious considering how easy it is to re-route email.

It is also common for email addressed to the wrong person to be ignored.  State employees must be instructed to treat communication from citizens with respect and at least reply with the message that the correspondence was improperly addressed.

The Department should take immediate steps to ensure that correspondence, including email, addressed to a terminated employee or sent to the wrong employee is properly forwarded or the sender advised of the mistake.  Failure to do so is official misconduct.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2014 John B. Payne, Attorney

A Little Sanity at Social Security Administration?

This is a follow up to “Don’t Ask Why, Just Pay.”  According to the Associated Press, Social Security Administration is halting the seizure of income tax refunds to repay overpayment claims more than 10 years old.  The article is “Social Security Halts Effort to Collect Old Debts.”


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2014 John B. Payne, Attorney

Don’t Ask Why, Just Pay!

A Michigan client recently received a disturbing demand letter about her father’s federal pension benefits received between 1977 and his death in 2012. The federal personnel agency, Office of Personnel Management (OPM) claimed her father had been overpaid by more than $20,000. There was no explanation of how the alleged overpayment occurred or when.

I ain't got no statute of limitations.

I ain’t got no statute of limitations.

The father’s estate had been probated and closed. I wrote a letter for my client telling OPM that the estate is closed and they are out of luck. According to an April 10, 2014 article in the Washington Post, my client has a much bigger problem than I thought.

The government is going after taxpayers, pensioners and Social Security beneficiaries for decades-old overpayments. The tax refunds of alleged debtors and family members of deceased alleged debtors are being arbitrarily withheld to pay back the treasury. In many cases, there is no explanation of when the overpayment occurred, or even who in the taxpayer’s family received the overpayment. Department of Treasury claims that it sends notices, but it often turns out that they were sent to decades-out-of-date addresses.  My client was lucky enough to receive the demand letter, but except for an amount and the statement that the overpayment occurred between 1977 and 2012, there was no explanation of how the claim was calculated.

Until a few years ago, the federal government was limited in its authority to collect most types of debts by a 10-year statute of limitations. The Washington Post article reports that the statute of limitations on debts to the federal treasury was eliminated by Congress in the Food, Conservation, and Energy Act of 2008. This means that the government now has the power to pursue recovery of unfairly received benefits, no matter how long ago. For example, there is now no time limit on claims by the Office of Personnel Management for pension overpayments. If OPM decided that William Henry Seward, Secretary of State in the Lincoln Administration, received an overpayment on his pension, OPM could pursue his heirs for reimbursement.

Once more, Mark Twain’s observation, “No man’s life, liberty or property is safe while the legislature is in session,” is proven right.  If Congress has the power — not the right, just the power — to retroactively wipe out the statute of limitations on U.S. government claims, would the British Parliament have the power to do the same?  The Brits could pursue collection of pre-American Revolution taxes owed under the Stamp Act from the descendants of colonists.  Would that be any more ridiculous?


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2014 John B. Payne, Attorney

More Corporate Records Chicanery

Corporate Records Service puts the chic in chicanery; as in collecting a fee for doing nothing is all the rage.  In addition to the annual corporate report artifice discussed here on August 3, 2013, Corporate Records Service is sending out a corporate minutes flim-flam.  The Dearborn Police NIXLE Alert calls this a scam, but actually it is not that.  There is no scam.

Corporate Records Service is offering to provide a service for a fee.  They do not mention that the service is worthless, but does 5-Hour Energy tell their marks that a 15-cent NoDoz tablet is as good as their $3.00 vile vial?  See Suck a Vile Vial.

Scam, or not, a small business would be wasting its money if it paid Corporate Records Service $125 to write up some minutes and do nothing with them.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2013 John B. Payne, Attorney

Filial Responsibility — Paying for Relatives’ Nursing Care

Parents are often very close-mouthed about their estates and affairs. Although adult offspring do not have a general right to enquire about their parents’ finances and estate plans, circumstances may arise that generate concern. Long-widowed elders may come under the influence of younger caregivers or neighbors. I had an 82-year-old client who fell for and married a 46-year-old gold digger.

Financially unsophisticated persons may be vulnerable to agents selling questionable investments. One of my clients loaned $50,000 to a friend of her unscrupulous financial planner. The loan was on a promissory note – not a mortgage – supposedly secured by a medical building in Arizona. Unscrupulous financial planners are not always operating out of cheap offices over bodegas. Banks often persuade depositors to buy unsuitable annuities.

Many sons and daughters who had assumed that their parents were comfortably well off find that they are living hand-to-mouth because their assets have been mismanaged or even stolen. Adult offspring may be hesitant to enquire too closely, but they have a legitimate concern – filial responsibility. Family members may be ordered to support indigent relatives in many states. Pennsylvania has a law that explicitly requires sons and daughters who have means to do so to support their needy parents, and vice versa. The statute places “responsibility to care for and maintain or financially assist an indigent person” on the person’s spouse, son or daughter, and parent. 23 Pa.C.S.A. § 4603(a)(1).

For a really scary case in which a court ordered a son to pay $93,000 to a skilled nursing facility for his mother’s care, see HCR v. Pittas, 2012 Pa. Super 96 (May 7, 2012). The Pittas case is alarming for many reasons. The court awarded the mother’s nursing home $93,000 for a six-month stay. This in itself is odd – nursing-home costs in Pennsylvania generally do not exceed $8,000 per month. Furthermore, the court failed to analyze the son’s financial means properly. The court noted that the son had income of $85,000 per year, but did not consider his support obligations for other dependants or his own financial needs, as the statute requires. Additionally, the statute under which the court awarded damages is a “support” statute which normally would not apply to past obligations. There are many aspects of the court’s decision that are out of kilter, but it provides an object lesson on the possibility that adult children and parents could be ordered to pay for care of family members in nursing homes.  On March 27, 2013, the Pennsylvania Supreme Court denied review.

Michigan law only imposes a support obligation on parents for indigent children, but sons and daughters who sign as guarantors for their parents at nursing homes or assisted living facilities may be sued for the care. I have had several clients who were being sued for their parents’ care.

Gifts and loans to relatives can give rise to liability if the person who made the gift or loan goes into a nursing home and needs Medicaid within five years. The Medicaid agency my deny coverage for nursing home costs. If the nursing home is unpaid, it may sue to recapture gifts or loans.

Older people do not have it easy and the government creates additional hazards. In addition to health problems and the loss of family and friends, the government closely examines their financial history if they are unfortunate enough to be in a nursing home and apply for Medicaid. The Medicaid agency assumes that anyone over 65 is waiting eagerly for the chance to get into a nursing home and apply for assistance. Younger family members have a legitimate concern for their seniors’ financial security. Over and above the fact that they care about their parents’ and other older relatives’ comfort and peace of mind, those younger family members could be required to provide financial support. Pointing this out to the loved ones may make it easier to raise difficult financial questions.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2012 John B. Payne, Attorney

Not All Pirates Are in Somalia

General Electric Co. made news last month when it reported U.S. profits of $5.1 billion and worldwide profits of $14.2 billion, but paid no federal corporate income tax. GE even reaped a net tax benefit of $3.2 billion. What the newsies do not mention is that the government additionally subsidized the ridiculous wealth GE and other corporations lavish on their executives. Uncle Sam must miss a lot of sleep staying up nights to figure out how to pour tax dollars into corporate treasuries.

We Bring Good Things to Immelt
General Electric Co. Chairman and CEO Jeffrey R. Immelt’s 2010 compensation more than doubled to $15.2 million as the company benefited from a recovering economy, equalling the annual pay of 1,000 minimum-wage workers (MWW). Since all of this compensation is deductible on the corporate tax return, the U.S. taxpayer absorbed 35% of the outrageous compensation packages for Immelt and his cohorts.

The 2010 record holder is Philippe Dauman of Viacom, who was paid $84.5 million–that’s equal to 5,600 MWW–for just nine months as C.E.O. Other CEOs who received bloated paychecks included Ray R. Irani of Occidental Petroleum,$76.1 million or 5,000 MWW; Lawrence J. Ellison of Oracle, $70.1 million or 4,600 MWW; John F. Lundgren, of Stanley Black & Decker,$32.57 million or 2,150 MWW; and David N. Farr, of Emerson Electric, $22.9 million or 1,500 MWW.

A small change in the tax code could address an economic problem that is syphoning corporate wealth into the pockets of top executives–impoverishing stockholders, employees, and the public at large. The median compensation for chief executives has risen at several times the inflation rate since the beginning of the century. Compare this to stagnant wages in the lower 99% of the workforce. The gains by these mercenary managers might be defensible if their pay were in proportion to their achievements. It is not.

Overcompensating Underachievers
A 2006 study by the Corporate Library, “Pay for Failure: The Compensation Committees Responsible,” named 11 public corporations whose chief executives’ pay had exceeded $15 million during the last two years despite five-year shareholder losses. “The disconnect between pay and performance is particularly stark” at Verizon, AT&T, BellSouth, Hewlett-Packard, Home Depot, Lucent Technologies, Merck, Pfizer, Safeway, Time Warner and Wal-Mart. For example, Ivan G. Seidenberg, chief executive of Verizon Communications, received $19.4 million in salary, bonus, restricted stock and other compensation in 2005. This was 48% more than in the previous year. As his compensation nearly doubled, the stock fell 26%, bondholders lost value as the company’s debt was downgraded by credit agencies, and 50,000 managers saw their pensions frozen. Verizon closed its books with 5.5% earnings. Mr. Seidenberg’s $75 million five-year total pay is an egregious affront to shareholders, who stood a loss of more than 26% in the period.

You Scribble my Check and I’ll Scribble Yours
Verizon’s board received a grade of D from the Corporate Library. One reason was that Verizon’s compensation committee–the group of board members who recommend what executives should receive–consists entirely of chief executives or former chief executives. Three of the four members sat on other boards with Mr. Seidenberg. On Wyeth’s board, Seidenberg helped set the pay of John L. Stafford, a member of Verizon’s compensation committee. He is past chairman and chief executive of Wyeth.

Verizon’s compensation committee was led by Walter V. Shipley, former chief executive of the Chase Manhattan Corporation, and was made up of Richard L. Carrión, chief executive of Banco Popular de Puerto Rico; Robert W. Lane, chief executive of Deere & Company; and Mr. Stafford, formerly of Wyeth.

Many of the Verizon directors who were on its compensation committee also met Mr. Seidenberg at board meetings of other public companies. At Wyeth meetings, Mr. Seidenberg encountered Mr. Shipley, who was the chairman of Verizon’s compensation committee and who was a member of Wyeth’s committee, sitting with Mr. Carrión, at least until 2006.

Mr. Seidenberg saw Mr. Stafford when the board of Honeywell International met. Mr. Stafford was chairman of Honeywell’s compensation committee, which included Mr. Seidenberg. A tally of the 29 directors of Exxon and Verizon who sat on multiple public corporation boards showed that the two boards were very tightly interlocked. Ten of the 29 were Exxon board members and 12 sat on the Verizon board, with three sitting on both boards. However, another interesting connection crops up–11 of these same board members sat on the board of Wyeth. Three were Verizon/Wyeth directors and two were Exxon/Wyeth directors. One director, Walter V. Shipley, sat on all three boards. This concentration of board seats ensured that these 29 directors who held down 92 public corporation board seats controlled all three companies.

Friendly Persuasion
Another factor that helped Seidenberg fatten his paycheck was that Verizon’s executive team had its “outside consultant,” Hewitt Associates of Lincolnshire, Ill, firmly in its pocket. Outside consultants are supposed to be independent and objective, but Hewitt, a provider of employee benefits management and consulting services with $2.8 billion in annual revenue, did much more for Verizon than advise it on compensation matters. Verizon was one of Hewitt’s biggest customers in the far more profitable businesses of running the company’s employee benefit plans, providing actuarial services to its pension plans and advising it on human resources management. Hewitt received more than a half-billion dollars in revenue from Verizon and its predecessor companies between 1997 and 2007. Hewitt was all over Verizon, operating its employee benefits Web sites and acting as actuary for three of Verizon’s pension plans. Hewitt also performed extensive work for Verizon’s predessor companies. Objectivity is compromised when the firm evaluating the executive’s compensation depends on its relationship with the executive for a large portion of its revenue.

By packing their boards of directors with cronies and ensuring that their “independent” consultants will provide the advice they desire, corporate CEOs persuade their boards to award them immense wealth. These graspers get writer’s cramp from signing so many checks to one another. Think of it this way: It is as if bank robbers formed a guild and then were allowed to elect one another as bank presidents. The story of corporate gluttony would be an amusement piece, like “Lifestyles of the Rich and Greedy,” but for the fact that these bloated compensation packages are being subsidized by lower and middle class investors and taxpayers.

Welfare for the Truly Greedy
We also subsidize these rapacious managers with a tax deduction. The corporate income tax rate is 35%. Therefore, for every million dollars the board votes to give the CEO, it only costs the corporation $650,000. The other $350,000 is paid by the government–that is the American taxpayer.

Stem the Hemorrhage
It is time to put these robber barons in the “time-out chair.” Send a message to the pirates of the big board that it is time to curb this fiscal abuse. One way would be to limit the corporate deduction for executive compensation to 100 MWW. If the minimum wage is $7.50, that would be $15,600 per year for full time employment. The corporation could deduct up to $1,560,000 per year in executive compensation. Executive pay could be more than that, but it would not be deductible.

This modest change in the tax code may have little effect on executive pay, but it would at least trim the public subsidy. However, cutting the deduction may have a profound effect. It is a government guideline as to the maximum reasonable paycheck for one person, no matter how prideful and self-important. CEOs who are used to receiving whatever outrageous compensation package they have the gall to demand will be given the message that they are committing the second deadly sin.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2011 John B. Payne, Attorney