Executive Compensation an Issue for Edwards
By Alec MacGillis
CONCORD, N.H. -- As his populist stump speech has grown even more forceful in the final weeks before primary voting begins, John Edwards has a new applause line about the outrage of high CEO compensation. "You've got the head CEO of one of the biggest health insurance companies in America, last year he didn't make a million dollars, he didn't make tens of millions of dollars, he made hundreds of millions of dollars. Hundreds of millions of dollars," Edwards told voters in Laconia, N.H. last week, about an unnamed executive.
Edwards also did not name another chief executive who did quite well last year: Wesley Edens, the president of Fortress Investment Group, the New York hedge fund and private equity firm that paid Edwards nearly $500,000 for his work as a part-time adviser in 2006, where Edwards has about $16 million invested, and whose employees earlier this year raised $167,000 for Edwards's campaign, his largest single source of contributions.
Edens earned $109.2 million in 2006, according to documents Fortress filed with the Securities and Exchange Commission as part of its initial public offering earlier this year, and the total value of Edens' shares in the firm following the public offering is estimated at about $1.8 billion. Fortress' top five executives, including Edens, earned an average of about $90 million each in 2006. In addition, the five principles earned a combined $409 million in the first two months of the year when the Nomura Group purchased an $888 million stake in the firm.
The Fortress executives earnings are on a slightly lower scale than that of the unnamed health care executive described by Edwards. But the gap is smaller than it looks, given that the earnings of hedge fund and private equity managers are taxed at a lower rate than other salaries -- under tax law, they are considered capital gains, instead of salary, and so are taxed at 15 percent instead of the more than 30 percent they would be taxed at if considered regular salary.
The Edwards campaign notes that he was the first of the Democratic presidential candidates to call earlier this year for raising the tax rate on private equity and hedge fund earnings, a move that Hillary Clinton and Barack Obama quickly followed. That proposal is not a part of his regular stump speech.
Asked about how Edwards' latest declarations against CEO pay jibe with his work for Fortress, campaign spokesman Eric Schultz said, "There is no shortage of examples of how the rich are getting richer and the middle class is getting left behind, and until John Edwards is president corporate greed will continue to overshadow the needs of working families. Just like Franklin Delano Roosevelt, an Edwards Administration will be hated by corporate interests on Wall Street and in Washington ."
Edwards' populist message has been undermined in other ways by his work at Fortress, which he said in an interview earlier this year that he chose as a place of employment because he wanted to learn more about capital markets and their relationship with poverty. Edwards has railed against companies that use offshore tax shelters; many of Fortress' hedge funds are incorporated in the Cayman Islands, which allows foreign investors and large institutional investors to avoid U.S. taxes on their gains with Fortress.
Edwards has also sharply criticized the predatory practices of some subprime mortage lenders, which have contributed to the surge in bankruptcies. When he went to work at Fortress in late 2005, it held a large stake in a major subprime lender, GreenTree Servicing, that has been accused of using predatory lending practices in, among other places, New Orleans, whose plight Edwards has made a focus of his campaign. While Edwards was at Fortress, the company bought large stakes in several other subprime lenders. Edwards has said that he could not recall whether he was told about the GreenTree stake at the time of his hiring and that he was not involved in the later investments. His role at Fortress was strictly advisory, he said, and he went to its New York office at most a few days a month. He has since started raising money, with some contributions of his own, to help the several dozen homeowners in New Orleans who have been forced into bankruptcies since Hurricane Katrina by mortgages held with lenders linked to Fortress.
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