AFL-CIO Calls CEO Pay System ‘Rigged’

Pointing to reports of a 38% increase in the compensation that chief executives at America’s largest companies received last year, the AFL-CIO released a report Thursday asserting that “boardrooms are rigged to overpay CEOs.”

“CEOs get multimillion-dollar sweetheart deals. Meanwhile, working families worry about downsizings and layoffs,” said AFL-CIO Secretary-Treasurer Richard Trumka, pointing to an “obscene difference” between the average worker’s pay and an “elite CEO’s paycheck.”

The typical full-time worker got a 2.9% raise in 1997, Trumka said.

Trumka spoke at a news conference Thursday held to draw attention to the labor federation’s Executive Pay Watch Internet site and to release a study of what the AFL-CIO called “significant personal, financial and business” conflicts between CEOs and the compensation committee members who set their salaries.

The federation launched its Web site last year to let workers compare their salaries with their bosses’ total compensation and voice complaints to Congress via electronic messages.

The pay of most CEOs of large companies is linked to the performance of their corporation’s stock. But the AFL-CIO believes one reason compensation is so generous is that members of the panels that set executive salaries are too close to their CEOs.

“Our data suggest the executive compensation system remains under the influence of the very executives it purports to supervise, who, in turn, rely on networks of personal relationships to frustrate the intentions of regulators and shareholders,” the 72-union federation said in its report.

The federation said it is joining with shareholder activists to promote proxy votes against huge pay increases.

It also called on the Securities and Exchange Commission to tighten up the reporting of relationships between senior executives and directors.

Although many workers are now shareholders in their companies and benefit from good financial performance, the AFL-CIO said executive salaries are out of all proportion.

Bill Patterson, director of the AFL-CIO’s Office of Investment, said high pay seems to be the order of the day whether a company is doing well or poorly.

“Good-performing companies use the rationale that they want to reward good performance and poorly performing companies say they need to properly incentivize management for a turnaround,” Patterson said.

But American Enterprise Institute economist Marvin Kosters said the pay for top executive talent is largely market driven.

“In many ways, executive compensation bears some relationship to the packages paid to top sports stars and musicians,” Kosters said. “People find it easier to understand why Michael Jordan is paid to play basketball.”