Exec Pay Is Focus of Public Attention

Sparked by an outcry over lucrative pay for corporate chiefs, Democrats on Capitol Hill wanted a hearing.

Republican Michael G. Oxley of Ohio, chairman of the House Financial Services Committee, said no. But Rep. Barney Frank (D-Mass.), sponsor of a bill to give shareholders power to veto big pay deals, pushed back.

In an unusual move, Frank enlisted each of the panel’s 33 Democrats to demand the hearing, which he hopes will galvanize interest in his legislation. The gambit worked, and the forum is scheduled for May 25.

In a time of $3 gas, frozen pensions and rising healthcare costs, executive pay is in the spotlight. Politicians point to the nearly $400-million package for former Exxon Mobil Corp. Chairman Lee Raymond and other deals as signs of broader unfairness in the American economy and a growing gulf between corporate chieftains and rank-and-file workers.

“It’s a symbol of what’s going on in the economy, of great wealth being hoarded by a handful of people,” Frank said. “The economy is out of whack.”

Christopher Cox, the conservative Republican who heads the Securities and Exchange Commission, is moving ahead with plans to require clear-cut disclosure of pay and perks, areas that have been obscured in a haze of vagueness. At recent annual meetings, shareholders have put new pressure on directors to clamp down on the payouts.

Indeed, executive pay may be taking its place alongside outsourcing, corporate downsizings and trade accords as a source of public frustration with the state of the economy, according to some political consultants.

“It’s a symbol of corporate excess at the expense of workers,” said Mark Mellman, a Democratic pollster. “It’s a symbol of companies that are only self-interested and no longer have loyalty to workers, to communities, even to the country.

“People know that Lee Raymond is making millions of dollars in a retirement plan, while some people are giving up savings and getting ripped off,” he said.

Congress historically has left it up to companies to figure out how much their leaders are worth, and its one noteworthy bid to intervene in the marketplace backfired.

Lawmakers in 1993 restricted deductibility of executive salaries above $1 million, but companies exploited loopholes in the law -- and $1 million ultimately became an unofficial floor for chief executive pay rather than the ceiling.

Frank would take a different approach. His bill would require shareholder approval of compensation plans for publicly traded companies. It also would require companies to disclose their policies for taking back incentive pay when the goals are not truly met.

Opponents, including Oxley, support the SEC’s push for greater transparency of a firm’s compensation practices, rather than giving investors the power to say no.

“Chairman Oxley is satisfied with how the process is being handled by the SEC,” said Peggy Peterson, an Oxley spokeswoman.

Republicans have a dilemma because big corporations and their executives have long been an important source of support for the GOP, Frank said.

“What do you do when a significant group of your constituents are behaving badly, and you have to repudiate them?” he asked. “That’s a politician’s nightmare.”

According to a Los Angeles Times/Bloomberg poll this year, the view that top executives are overpaid extends across party and ideological lines. Among both Democrats and Republicans, 80% thought CEOs of larger corporations were paid too much.

Even among those who described themselves as conservative -- a group that might be expected to accept the workings of the marketplace -- 74% said corporate heads were overpaid. Among liberals, 84% felt that way.

The issue is even causing some unease among corporate executives’ natural allies in the Republican Party. In late April, as public unhappiness with gas prices was soaring, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) asked the Internal Revenue Service for tax and financial data on the nation’s largest energy companies.

“We’re seeing record profits and significant executive compensation in the oil and gas industry,” Grassley explained. “I want to make sure the oil companies aren’t taking a speed pass by the tax man.”

Although disclosure of Raymond’s deal put the spotlight on energy companies, controversial pay arrangements have cropped up in various industries. Earlier this month, William McGuire, chairman and CEO of Minnesota-based UnitedHealth Group, apologized to shareholders after disclosures that he held $1.6 billion in unexercised stock options at the end of last year.

Other arrangements, including the retirement plan for Pfizer boss Henry A. “Hank” McKinnell Jr., which could provide a lump sum of $83 million, and last year’s compensation of $37 million for Merrill Lynch’s chief executive, E. Stanley O’Neal, also have disturbed blocs of shareholders this year.

Although such deals are out of the ordinary, lower-paid CEOs are not suffering either. An April report by Mercer Human Resource Consulting found that median compensation for chief executives at 350 big companies last year rose 7.1%, to $2.4 million. For ordinary workers, the gains were in the range of 3% to 4%.

In this environment, investors are using a new weapon against board members they consider lax in oversight. The pressure is taking the form of resolutions urging that director candidates get a majority vote to win their seats, rather than the traditional -- and much easier -- plurality.

Such proposals have carried the day in recent annual meetings at Verizon Communications Inc., Sprint Nextel Corp., Bank of America Corp., Kohl’s Corp. and others, according to preliminary results.

“The shareholders feel that only by making directors more accountable will there ever be more substantive changes in the way executives are paid,” said Carol Bowie, a vice president with Institutional Shareholder Services Inc. in Rockville, Md.

Just how these issues will play out in the political arena is less clear. Democrats would like to tie pay to the theme of fairness to the middle class, as workers struggle to finance a growing portion of their own retirements while paying the bills for college tuition and healthcare.

But Democrats have had limited success playing the economic card in recent years. Concerns about national security outweighed concerns about economic security in the last presidential election. Moreover, Democrats failed in past efforts to turn corporate scandals such as those involving Enron Corp. and WorldCom Inc. -- another symbol of unfairness in the economy -- into a winning issue.

As a result, some Republicans predict that the current mood, stirred in large part by prices at the pump, will not translate into votes.

“There’s no question that the timing of the [Raymond pay disclosure] with the peak of gas prices has gotten everybody riled up -- but I don’t see how that punishes one party on election day,” said Scott Reed, a Republican strategist.

But Amy Walter, senior editor of the Cook Political Report, a nonpartisan newsletter, cautioned that it would be hard to rule out how the issue will play at a time when Americans are confronting higher gas prices and insecurities about their jobs and retirement savings.

“How it manifests itself in a campaign is yet to be seen,” she said.