Greed Drives Ceos’ Pay Higher

When even conservative Pat Buchanan started ripping into them this year, the nation’s corporate executives began getting defensive about their business practices.

Tired of hearing politicians, pundits and labor leaders attack them on charges of “corporate greed,” some executives are now defending themselves, claiming they don’t unfairly boost profits by squeezing workers.

Not many Americans would agree. Most workers are convinced corporate leaders have gotten greedier in recent years.

So who’s right? Have corporations been laying off workers just to help the rich get richer?

Senior executives can make a pretty good case for themselves on very narrow grounds. They are correct in saying corporate profits - after taxes - have fallen steadily from the highs established after World War II. In the 1950s, for example, profits ran at about 10 percent of revenues. Since then, the average has steadily declined. In this decade, profits have been averaging just 6 percent of revenues.

Why the constant shrinking of profits? For one thing, increased foreign trade has intensified competition, forcing U.S. companies to lower prices. Also, profits have suffered because companies tend to borrow more money these days, often to pay for upgrading equipment, such as computers.

Even though profit margins are slimmer these days, companies continue to pass along about 65 percent of revenues to workers in pay and benefits - the same as they have for decades.

Unfortunately, workers feel as though they are being shorted because a bigger proportion of corporate funds earmarked for labor must go to pay for benefits, not raises. Higher medical costs mean companies must spend more for health plans. Also, corporations pay far more into the Social Security system than in the 1950s and 1960s.

Does all of this mean executives are being unfairly charged with avarice? Why do so many people believe bosses are getting greedier if companies really aren’t driving profits to unreasonable levels or reducing the percentage of revenues given to labor?

The reason lies in the outrageous pay raises CEOs give themselves. Executives are deluding themselves if they think their gigantic pay packages are going unnoticed. While workers are constantly being asked to make sacrifices to help their employers compete, top executives are loading themselves up with bonuses and stock options.

Just 20 years ago, companies typically would reserve about 3 percent of their outstanding stock as options for senior management. Today, among the nation’s 200 biggest companies, about 10 percent of the outstanding stock goes to compensate top executives with stock options, according to a survey by Pearl Meyer & Partners, an executive pay consulting firm in New York.

And the greed keeps growing. The consulting firm also reports that the heads of major U.S. corporations saw their compensation increase by 23 percent in 1995. Compensation for the chief executives of the 35 large companies surveyed by Pearl Meyer averaged $4.37 million last year. That works out to about $17,500 per workday. Even on a long day, that’s roughly $1,700 an hour. (Don’t forget, these are the same guys who oppose raising the $4.25 minimum wage.)

“Why should we sacrifice when they don’t?” asked James Davis, a member of the International Association of Machinists union at Lockheed Martin Co. in Marietta, Ga. “When they get these bonuses, it’s disheartening.”

Executives who argue that corporations aren’t getting greedier are so completely removed from real life, they have no idea how ridiculous they sound. Most workers have little understanding of historical data about profits as a percentage of revenues. That’s a lot of jargon. All they know is that they got a 3 percent raise last year while the boss gave himself a 23 percent raise. Good workers get pink slips while even bad CEOs get huge stock options.

Executives who reward themselves like kings while laying off workers and withholding raises have no right to complain about any rough treatment they get in the press or on the political campaign trail.

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