Ross Mackenzie A new era of accountability for executive pay?
Several years back — remember? — the culture swelled with corporate fraud. Criminal prosecutions abounded, and once-rollicking nameplates tanked: Enron, Worldcom, Tyco, Adelphia, Healthsouth. Others took heavy hits: AOL Time Warner, Fannie Mae, KPMG, AIG. Contagion seemed everywhere in the air.
Part of the reaction was the Sarbanes-Oxley law, requiring companies to do a lot of new things — some of which helped make many corporate actions transparent, as they should have been all along. And part of the consequence of Sarbanes-Oxley — combined with a long-held but heightened populistic sense — was renewed attention on executive compensation.
An arched eyebrow (at least) at executive compensation is hardly new. In a more egalitarian hour, President Franklin Roosevelt used his 1936 State of the Union address to rip "entrenched greed" at U.S. companies (the same companies that five years later became in his words "the arsenal of democracy," but never mind).
Big-time corporate pay in the United States long has been higher than at foreign equivalents, particularly in Asia. Through the post-war period it barely budged; in 1970 average corporate compensation stood — after adjustment for inflation — hardly higher than 30 years earlier.
Then came a dazzling array of alternative pay packages: stock, enhanced stock options, bonuses, deferred compensation, golden parachutes and of course perks. In 1981 Time Warner’s Steven Ross became the first CEO to crack the $10 million barrier in annual compensation. Today Mark Reilly, a partner at 3C Compensation Consulting Consortium, estimates — according to a March report in The Wall Street Journal — that "nearly half of the 500 biggest public companies will reveal CEO pay packages of around $100 million — including 2006 compensation, stock-option exercises and accumulated pension benefits."
No kidding, that’s $100 million — and a whole lot of shameless acceptance on the part of recipients who should know better. Also, in 2005, the nation’s average CEO made 369 times that of the average American worker. One needn’t be a Thorstein Veblen or Karl Marx to find in such numbers a certain degree of excess, or greed, generating in the everyday rest of us a legitimate sense of outrage.
Lofty incomes for entertainers, athletes and buffed and tucked and lifted newsreaders do indeed astound. But such people are talented at amazing us and making us awed and laugh and feel good. Such qualities are less evident in a number of corporate swells, e.g. those at Ford. Last year the company lost $12.6 billion — performance for which its top executives received $62 million, including $28.2 million for Ford’s CEO.
There can be no rational defense for such greed. It is flat-out wrong. It breeds resentment and morale problems among employees — and anger among stockholders, whose hostility targets not only the executives but the enabling, too-often incestuously placed directors.
Efforts to limit executive pay long have failed and — like having much of the stuff ooze out between the fingers as one tries to pick up Jell-O — frequently have resulted in more compensation for executives, albeit in oozy new forms. As indicated at companies such as Pfizer, Home Depot, Blockbuster, Verizon and Merck, that may be about to change. This summer’s union-management talks over cost-cutting could feature major eruptions over executive pay packages at the Michigan automakers.
Led by investment firms and state and union pension funds, shareholders are targeting executive pay packages — especially in cases of dismal share performance. This year investors have submitted nearly 300 proposals related to executive pay at public companies, about twice the number submitted last year. Perhaps soon investors will begin targeting, as well, annual compensation for the kept directors who sanction executive pay packages more lucrative than any mere mortal in good conscience possibly could need.
It’s a fact of life that many people will try to get away with things until the spotlight shines on them. It’s also true that one should not begrudge another’s good deal but pass it off to luck. Yet some "deals" are just too good, and merit the bright, corrective light of right reason.
The recent visit by Queen Elizabeth reminded, among other things, that we are not a monarchy because outraged Americans did something about it. Thus began The American Way. Recent disclosures about the too-often astounding levels of executive compensation remind that we are not — and shouldn’t become — a plutocracy either.
Ross Mackenzie is a former editorial page editor at the Richmond (Va.) Times-Dispatch, now retired.