Putting a Lid on Rising Dough
It’s not often that protesters at corporate shareholder meetings bring baked goods, but the folks outside the Citigroup annual meeting in New York six weeks ago had more than munching in mind.
Armed with 5,566 fortune cookies representing the $167-million compensation package of Citigroup co-Chief Executive Sanford Weill and a single fortune cookie representing the average bank teller’s $30,000 salary, the activists were complaining about swelling executive compensation and drawing attention to a shareholder resolution to limit the pay of those at the top.
Despite a cold rain and the Big Apple’s chilly reputation, shareholders clamored for the cookies, which contained messages decrying executive fortunes. And nearly 11% of the shares voted at the meeting supported the resolution to cap CEO pay at a multiple of the wages of the lowest-paid worker.
“These compensation plans are just too rich . . . and the problem is getting worse,” said Scott Klinger, director of Responsible Wealth, which this spring has sponsored similar shareholder resolutions at the annual meetings of seven other corporations, including BankAmerica, General Electric and AT&T.;
If ever there was a tidbit worth concealing, it would be how much money the boss is making. What’s more, chances are that he (or sometimes she) is getting richer and richer, regardless of how the company is doing.
The average blue-collar worker got a 2.7% raise last year. The average white-collar worker got a 3.9% pay increase. The average CEO took home 36% more, according to Richard Trumka, a one-time mine worker who is now secretary-treasurer of the AFL-CIO.
Meanwhile, corporate pretax profits slipped 2.2% in 1998, the first annual decline since 1989, according to Commerce Department statistics.
“It’s so outrageous, and it’s so out of control,” Trumka said. “When the boss makes so much money, out of line with what everyone else makes, it hurts the places where people that we represent work.”
Increasingly, shareholder activists and labor organizations are combating big executive paychecks handed out at the nation’s publicly held corporations, arguing that morale, productivity and profits are damaged.
Large pay discrepancies within a company end up hurting performance, said Matt Bloom, an assistant management professor at Notre Dame University.
Bloom recently published a study in the Academy of Management Journal that examined pay spreads within baseball teams compared with performance over a nine-year period. The conclusion: Baseball players performed better when pay was dispersed fairly equally throughout the team, using several different measurements of performance and pay.
This was dramatically illustrated by last year’s standings. Three of last year’s divisional winners--the San Diego Padres, New York Yankees and Cleveland Indians--had among the smallest pay spreads in their leagues. Three of the bottom teams--the Florida Marlins, Arizona Diamondbacks and Tampa Bay Devil Rays--had among the greatest spreads.
“In an organization where you need people to work together, where teamwork is important, then wide pay spreads are bad things,” said Bloom, who also studies compensation systems in businesses. “People agree that the top performers or the chief executive should be paid more, but not so much more that the pretty good performers that every business needs get to feeling that the spread is unfair.”
Corporations have contended that large salaries are required to attract the best talent and to reward executive performance. In addition, some of the huge compensation packages that draw the most criticism are composed largely of stock options that have increased in value with a booming stock market.
For example, IBM’s 291,000 employees most probably will not enjoy the kind of raise that Chairman and Chief Executive Louis Gerstner raked in last year. Gerstner saw his base pay jump 25% to $1.88 million and his overall compensation, including bonus and deferred savings, rise 67% to $13.7 million.
“Yes, Gerstner got a good raise, but if you compare it to what the stock did, shareholders benefited in percentage terms to a greater extent than he did, which compensation experts say is an appropriate measure,” said IBM spokesman John Bukovinsky. IBM’s stock price rose 76% in 1998 and is up 700% since Gerstner became chairman in 1993, he said.
Finding out what the big bosses make is fairly easy if you work at a corporation that has placed stock in the public’s hands. The information for the best-paid executives in each publicly traded U.S. company can be found in the corporation’s proxy statement, which can be obtained through the company itself or from the Securities and Exchange Commission through its Internet site at https://www.sec.gov. Other Web sites also link to or contain this information, particularly for large companies.
Such information generally is not available for smaller, privately owned companies unless the top dog is going through a messy divorce or the company has been hit with some particularly revealing litigation.
The AFL-CIO has received more than 10 million hits on its 2-year-old Web site devoted to fighting large salaries for chief executives, Trumka said. At the Executive Paywatch site (https://www.aflcio.org/paywatch/) visitors are invited to check out how much the chieftains at major corporations earn. You can even calculate how long you would have to work to earn what the CEO of your employer earns in a single year (if your employer is among the Standard & Poor’s 500).
The Web site also highlights examples of corporations where the board’s compensation committee, which sets the top salaries, is not independent, perhaps containing a family member of the chief executive or directors whose companies do business with the corporation.
“We’re trying to educate the general public,” Trumka said. “This is a runaway thing.”
