by Holly Sklar
May 1, 2003
You know CEO pay is still out of control when Fortune magazine puts a smiling pig in a suit on the cover and headlines its pay roundup, "Have they no shame? Their performance stank last year, yet most CEOs got paid more than ever."
Fortune, remember, is a leading business magazine, not a union publication.
Median CEO pay at the 100 large companies in Fortune's survey rose 14 percent last year to $13.2 million. Half earn more than the median, half earn less. Median CEO pay at the 365 large companies measured by Business Week rose 6 percent to $3.7 million, including salary, bonus and long-term compensation such as exercised stock options.
CEO pay went up in 2002 while company revenues, profits, stock value and employment went down. The S&P 500 stock index dropped 21 percent last year. Total revenues for the Fortune 500 fell 6 percent and profits plunged 66 percent. Another 1.5 million Americans lost their jobs. Personal bankruptcy filings set a new record.
While most CEOs did better, average CEO pay dropped because the highest paid CEOs could not cash in as much stock option loot in a down market. Still, average CEO pay in Business Week's survey was $7.4 million. It would take 241 years for an average worker paid $30,722 to make that amount.
Since 1980, average CEO pay has skyrocketed 442 percent, adjusting for inflation, from $1,364,524. Average worker pay has inched up just 1.6 percent from an inflation-adjusted $30,244 in 1980.
If CEO pay had grown at the average worker pace since 1980, it would be $1,386,065. If average worker pay had grown at the CEO pace, it would be $164,018.
CEO pay is outrageous compared to workers and outrageous compared to CEOs from other countries. According to the Towers Perrin worldwide pay report, U.S. CEOs are paid more than twice as much as Canadian CEOs, nearly three times as much as British CEOs, and four times as much as German CEOs.
No. 1 on Business Week's 2002 pay scoreboard was financial giant MBNA CEO Alfred Lerner with $194.9 million. Lerner died in October 2002 and was succeeded in November by Charles Cawley, who managed to place No. 6 on the list with total pay of $48.6 million. Two more MBNA executives who weren't CEOs also got megabucks. John Cochran III got $36 million and Bruce Hammonds, $28.6 million.
You would think a company paying four people a combined $308 million must have had a great year. MBNA shareholders know otherwise. MBNA's total return to investors was negative 18 percent.
The stock market has been down for three years and counting. Business Week ranked CEOs who gave shareholders the least for their pay during 2000-2002. No. 1 was Oracle's Larry Ellison who hauled in $781.4 million; shareholder return was negative 61 percent. Cendant's Henry Silverman got $184.5 million; shareholders got negative 61 percent. Cisco Systems CEO John Chambers took $157.6 million; shareholders lost 76 percent. Sun Microsystems CEO Scott McNealy got 53.1 million while shareholders were nearly wiped out with a negative return of 92 percent.
For a longer picture of what Fortune dubbed "The Great CEO Pay Heist," look at the treasure paid to Disney CEO Michael Eisner in the ten years ending in 2002. Eisner collected $954 million, by Business Week count, an average of 95.4 million a year--more than $1.8 million a week.
Talk about pay for nonperformance. Disney shareholders got an annual rate of return during 1992-2002 of just 1.9 percent, compared with the Fortune 500 median annual return of 9.1 percent.
Fortune observes, "Up through the 1970s, a chief executive's pay was generally linked to that of his underlings in a geometrically proportional relationship known as the 'golden triangle.'" Now CEOs have their own alchemy triangle of golden handshakes, golden parachutes and golden retirements.
Back in 1980, CEOs made 45 times the pay of average workers. Last year, they made 241 times as much. By contrast, British CEOs made 25 times as much as workers, Canadians 23 times as much and Germans 13 times as much.
Whether measured against our own past or other countries, CEO pay should fall and worker pay should rise to bring us to a reasonable relationship between CEO and worker pay.
Holly Sklar is coauthor of Raise the Floor: Wages and Policies That Work for All Of Us (www.raisethefloor.org). She can be reached at firstname.lastname@example.org. Distributed by Knight Ridder/Tribune News Service, April 9, 2003. Copyright 2003, Holly Sklar.