There wasn’t even a pause in the runaway rates of pay that CEOs got this past year, despite public outrage over corporate accounting scandals at Enron, WorldCom and other high-flying U.S. companies.
Median compensation for CEOs actually rose by nearly 6% in 2002, according to the latest surveys by the New York Times and BusinessWeek.
Implosions at the oil trading giant, telecommunications leader and elsewhere across the stock market appeared to have no tempering impact on compensation bonanzas for chief executive officers in 2002, regardless of the companies’ performances.
“The executive feudalism that emerged in the 1990s remains,” said Lawrence Mitchell, a professor at George Washington University Law School.
“The lords of the manor take what they believe they’re entitled to and leave the crumbs for the peasants,” said Mitchell, whose book, Corporate Irresponsibility: America’s Newest Import, was published just as Enron was hitting the headlines in early 2002.
The Times survey showed that the average CEO compensation package in 2002 totaled more than $10 million, and BusinessWeek put the average pay packet at $7.4 million. Payouts typically include annual salary and stock options along with other incentive awards.
The average rate of executive pay did decline in 2002, reflecting cuts for some of the most obscenely paid chieftains, according to BusinessWeek. But most top bosses received raises, even while share prices and profits were declining.
The median rise in executive pay, at about 6%, was twice that of the average worker’s pay increase, according to the AFL-CIO. And the ratio of pay between executives and rank-and-file workers has risen dramatically over the past 20 years, according to BusinessWeek.
“They haven’t learned a thing,” Mitchell said of corporate fat cats. “Just look at Donald Carty’s shenanigans at American Airlines. The pigs are back at the trough.” Carty resigned as CEO of the troubled airline in late April, but not without paying out sky-high retention bonuses to seven executives, including him, and socking away $41 million in bankruptcy-protected pension dollars for him and another 44 executives.
“So he got caught,” Mitchell said of Carty, “But he still walked away with millions and millions of dollars.” Carty eventually backed away from much of the “stealth wealth” payments to the half dozen executives who had presided over a truly pitiful earnings trajectory. But his salary, though the lowest among all CEOs in the airline industry, was bumped up a whopping 38% in 2002. Capping off Carty’s wretched drama was $1.8 billion in wage concessions for American’s hard-working flight attendants, pilots and ground workers.
All this played out against a backdrop of billions in federal loan guarantees to the airline industry, a policy that has effectively put taxpayers on the hook for executive compensation abuse.
“The one thing that you think would restrain them (CEOs) is shame. But they have to be capable of feeling shame, and it’s clear that they’re not,” Mitchell said.
Encouragingly, also on the rise in 2002 was the number of shareholder-led challenges to outrageous executive compensation packages, pension perks and severance agreements. Additionally, shareholders have ratcheted up the pressure on companies to expense the stock options awarded to top managers, an accounting method that more accurately reflects a company’s true earnings.
Union pension funds were behind many of the shareholder initiatives, and the momentum is expected to continue.
“This year is the first year that there was a significant backlash on executive pay” at the shareholder level, said Bill Patterson, director of the AFL-CIO’s Office of Investment.
For the 2003 annual meeting season, labor unions have filed some 500 shareholder resolutions to control executive compensation, of which about 300 were forwarded by the building trades unions, according to Carin Zelenko, director of corporate affairs for the Teamsters. Last year, the building trades filed about 100 shareholder proposals, she said.
“Over the years they’ve been growing, and since Enron they’ve shot up,” Zelenko said of shareholder challenges. More and more, these non-binding challenges are receiving majority support at shareholder meetings. Labor was behind more than a quarter of all corporate governance shareholder proposals last year, according to the Times.
Companies are not legally required to adopt shareholder proposals, but some are beginning to see the writing on the wall, particularly with stock option expensing and creative severance and pension packages, Zelenko said. The Bank of America, for instance, has committed to seeking shareholder approval on golden parachutes that exceed 300% of a departing executive’s salary, based on a shareholder proposal adopted at the 2002 annual meeting, Zelenko said.
“The shareholders are voting against CEO pay in record numbers,” Patterson said. “Companies like General Electric and Coca Cola are pulling in their pension packages for executives, based on shareholder-led executive challenges.”
But without continued shareholder pressure – and key leadership from unions – corporate chiefs won’t change their avaricious behavior.
“There’s no humility,” Zelenko said. “They don’t do it unless they’re forced to.”
Cynthia Green is a freelance journalist.
© 2003 Labor Research Association http://www.lraonline.org/story2.php/298
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