The average chief executive officer in America got a 38
percent raise last year while the typical worker received only 2.9 percent, said the
AFL-CIO earlier this year. Based on newly released 1997 data, the 38% pay increase
outstripped all other key economic indicators including wages (3.5%), inflation (2.3%),
corporate profits (5%) and the S&P 500 (31%). The ratio between average CEO
compensation and worker pay has now risen to 326 to 1 compared to a ratio of 44 to 1 in
1965.
"There's no question that executive compensation is out of control," AFL-CIO
Secretary-Treasurer Richard Trumka told a press conference in April. "While CEOs get
multimillion dollar sweetheart deals, working families suffer downsizings and
layoffs," he said.
In response, the AFL-CIO has undertaken several initiatives to challenge excessive
executive pay packages. Last year, the AFL-CIO launched Executive Pay Watch
(www.paywatch.org), a website that posts the compensation of top executives and provides a
campaign toolkit for working families to fight back.
"Over 260,000 visitors have logged onto the site since its inception," said
AFL-CIO President John Sweeney, "with over 4.6 million 'hits' and Pay Watch has
received widespread media coverage," including the Wall Street Journal which devoted
a full page story to Executive Pay Watch earlier this year.
Some samples from the website:
Last year, John Snow raked in $4,572,087 in salary, bonus and other
compensations from CSX. If you add in the $2,816,352 in stock option
grants awarded to John Snow, that's a total of $7,388,439. And John Snow has $15,871,605
in unexercised stock options from previous years.
Last year, David Goode raked in $1,943,013 in salary, bonus and other
compensations from Norfolk Southern. If you add in the $850,400 in stock
option grants awarded to David Goode, that's a total of $2,793,413. And David Goode has
$5,121,948 in unexercised stock options from previous years.
Last year, Robert Krebs raked in $1,353,311 in salary, bonus and other
compensations from Burlington Northern Santa Fe. If you add in the
$2,762,700 in stock option grants awarded to Robert Krebs, that's a total of $4,116,011.
And Robert Krebs has $16,136,082 in unexercised stock options from previous years.
Last year, Drew Lewis raked in $7,196,889 in salary, bonus and other
compensations from Union Pacific.
This year, the AFL-CIO has updated the website and released a new report Too Close
for Comfort: How Corporate Boardrooms are Rigged to Overpay CEOs. Answering the
question of why CEOS are so grossly overpaid, the study found that many board of directors
serving on company compensation committees have close personal, financial and business
ties to top executives. The study calls for the Securities and Exchange Commission to
impose stricter standards of independence for directors serving on compensation
committees.
Just one example of this from the report: Georgetown University basketball coach John
Thompson was paid $350,000 by Nike Inc. in 1997 for an endorsement contract while serving
on the athletic shoe company's compensation panel.
High-paid executives, and the public relations staff hired to explain the multi-million
dollar pay deals, claim that all the fuss about executive compensation is unfair. They
argue that if a CEO improves a company's financial performance, and shareholders see a big
return on their investment, it's appropriate to reward an executive with a big pay
package.
Some of the reasons why the AFL-CIO says the current pay levels aren't justified:
What About Employees? The growth of executive pay has skyrocketed, while employees have
seen a continual decline in real earnings, and the looming threat of layoffs. And despite
rising productivity gains and corporate profits, U.S. workers aren't seeing the benefits.
Pay for Mediocrity. Many CEOs are reaping huge stock option gains merely because their
company is riding the bullmarket, not because of their stellar managerial abilities.
Pay for Underperformance. CEOs are receiving big pay packages even if the company is
going down the drain. Business Week's annual survey of executive compensation
routinely identifies poorly performing companies headed by CEOs who still receive big
compensation packages.
Execessive Executive Pay Could Hurt Shareholders. Excessive executive pay ultimately
comes out of the pockets of shareholders. The huge mega option grants awarded to CEOs
aren't reflected in earnings and many shareholders could see a significant dilution of
their shares as a result.
How Much Is Enough? While many justify the piling on of stock options as appropriate
incentives to encourage performance, how much is enough? For example, Jack Welch, the CEO
of General Electric, was awarded 320,000 stock options in 1996. But he already had over
$100 million in unexercised options. If GE provided Welch with another $100 million in
options, would Welch be so motivated that he could double the profits of GE? |