April 19, 2007 in Opinion

Executive pay reform’s time has come

Sarah Anderson Institute for Policy Studies
 

Now that everyone from George Bush to Ralph Nader agrees that CEOs make too much money, it’s time to talk about what to do about it.

During a recent speech on Wall Street, President Bush asked corporations to voluntarily restrain their executives’ pay. I wish him good luck with that.

Corporate boards are stacked with friends of CEOs or with other business leaders who have a vested interest in keeping executive pay high.

Some shareholder groups say the answer is for Congress to give them the right to a nonbinding annual vote on CEO pay packages. That might help prevent more Hank McKinnells. He’s the guy who sparked an uproar among Pfizer shareholders when his pay skyrocketed while the drugmaker’s stock plummeted.

But what about the Lee Raymonds? People who were feeling the pain of high gas prices were outraged last year when the Exxon Mobil chief walked away with a $400 million golden parachute. But shareholders also benefited from the oil windfalls.

Occidental Petroleum recently reported that CEO Ray Irani pocketed more than $270 million in stock options gains alone in 2006. But his shareholders are also unlikely to gripe, given how world oil prices have driven up that company’s stock.

While increasing shareholder power is important, Congress should do more to tackle the extreme inequalities that affect us all.

The Senate recently took a step in the right direction by voting to limit how much executives could put into tax-deferred compensation plans. Ordinary Americans can invest only $15,500 per year in tax-deferred 401(k) accounts. Top corporate executives, on the other hand, routinely stash boatloads of dollars a year in tax-free accounts set up just for them by their companies.

The Senate’s reform is not exactly revolutionary. Executives could still defer up to $1 million per year. Nevertheless, any kind of limit on this widely abused privilege would be an important step toward fairness.

The Business Roundtable doesn’t see it that way. The powerful association of top executives is fighting pay reform proposals now pending in Congress. Not surprising, since Business Roundtable chief executives took home nearly 50 percent more compensation last year than the typical large company CEO, according to a new report by the Institute for Policy Studies — the organization I work for — and the Center for Corporate Policy.

The highest-paid Business Round table member was Lloyd Blankfein of Goldman Sachs, with $55 million.

Using Wall Street Journal data, the study also found that the Business Roundtable CEOs saw their pay increase 10.6 percent last year — nearly three times faster than pay for white-collar workers.

One of the most outrageous examples of the disparity between workers and CEOs was Richard Clark, of the Merck pharmaceutical firm. After announcing more than 7,000 job cuts in late 2005, he reaped a pay increase of 167 percent in 2006, bringing his total compensation to more than $8 million.

Similarly, at Motorola, chief executive Edward J. Zander pocketed $15 million last year, while preparing to lay off 3,500 workers.

As the Wall Street Journal put it in its just-released CEO pay survey, “outrage over executive compensation has hit a boiling point.”

The new Democratic-majority Congress has a tremendous opportunity to prevent this anger from boiling over by putting real limits on executive privilege.


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