CEO Gravy Train Keeps On Rolling

It’s getting harder to tell CEO paychecks from lottery payouts. Except that CEOs expect to win big even when the company loses.

When Coca-Cola CEO Douglas Ivester announced his retirement, Bloomberg compensation analyst Graef Crystal observed, “Here is a man who is resigning after a two-year tenure as CEO that produced a return for shareholders of a negative 7.3 percent. For that, he is walking away with stock options, and other goodies worth at least $120 million.” Meanwhile, as the AFL-CIO Executive PayWatch reports, Coca-Cola is laying off thousands of workers and facing a lawsuit alleging the company discriminated against Black employees in promotions, pay, and performance evaluations.

Many CEOs make more in a year than their employees will make in a lifetime. In 1999, the average CEO of a major corporation earned $12.4 million, including salary, bonus, and other compensation such as exercised stock options, according to Business Week’s latest survey of executive pay. That’s $34,000 a day including Saturdays and Sundays.

In 1980, CEOs made 42 times the pay of average factory workers. In 1990, they made 85 times as much. By 1999, CEOs made 475 times as much as workers.

CEOs got a raise of 17 percent last year while blue-collar workers got a raise of 3.5 percent and white-collar workers got a raise of 3.4 percent, just a little ahead of inflation.

The top CEOs earned as much as small countries last year. Computer Associates CEO Charles Wang led the gravy train with $655 million. Next were Tyco International CEO L. Dennis Kozlowski with $170 million, Charles Schwab CEO David Pottruck with $128 million, Cisco CEO John Chambers with $122 million, and America Online CEO Steve Case with $117 million.

Many CEOs have amassed future fortunes in stock options not yet exercised. Yahoo CEO Timothy Koogle leads with $2.3 billion in unexercised stock options, followed by American Online’s Steve Case with $1.3 billion and Barry Diller of USA Networks with $1 billion.

CEOs aren’t shy about claiming all the credit for company success to justify taking a big chunk of the rewards. Tyco CEO L. Dennis Kozlowski told Business Week, “While I gained $139 million [in stock options], I created about $37 billion in wealth for our shareholders.” Thousands of Tyco employees in 80 countries didn’t have anything to do with creating that wealth apparently. Kozlowski himself designs and services Tyco’s fire safety and electronic security systems and must be very busy building the company’s global undersea fiber optic communications network.

GE brings good things to life for CEO Jack Welch. He made $93 million last year and has some $436 million in options he still hasn’t cashed in on. According to the AFL-CIO’s Executive Pay- Watch, Welch has cut GE’s domestic work force by nearly 50 percent since 1986 and relentlessly relocated work to low-wage countries like Mexico and China. Welch told CNN in 1998, “Ideally, you’d have every plant you own on a barge, to move with currencies and changes in the economy.”

Most CEOs now get a major chunk of their pay in the form of stock options that don’t count against company earnings the way salaries do. Take a leading company like Cisco, where CEO John Chambers hauled in $121.7 million and Donald Listwin hauled in $47,505 last year by Business Week’s calculations. According to the New York Times, “Cisco reported $2.1 billion in net income in 1999, but accounting for options would have erased $500 million of that, according to a footnote in the annual report. That would amount to a 24 percent reduction in earnings per share.”

In its April executive pay report, the New York Times asked, “Do companies get an extra bang from making their chief executives centimillionaires, for instance, rather than mere decimil- lionaires?” The Times cited a study by Columbia Business School professors examining the performance of 600 companies over the last 20 years. It “showed that increasing an executive’s stake in a company did not cause stronger earnings or a higher stock price. Instead, it appears to be other factors, like research spending, that cause a company to perform well.” A study by Salomon Smith Barney found that most of the heaviest users of stock options in the S&P 500 underperformed the S&P 500 stock index.

According to Business Week, Disney CEO Michael Eisner gave shareholders the least bang for his bucks in the last three years. Over that period he hauled in $636.9 million.

The Wall Street Journal’s executive pay report spotlighted “Net envy,” an extreme cycle of keeping up with the Joneses in which “the spread of stratospheric compensation for Internet leaders is reverberating…in brick-and-mortar boardrooms everywhere.” When the Joneses are centimillionaires and billionaires the consequences are enormous.

What kind of society has a minimum wage of $5.15 an hour— $10,712 a year—at the bottom of the pay scale and a de facto minimum wage in the millions at the top?

Average Americans subsidize outrageous CEO compensation through company deductions from taxes. Rep. Martin Sabo (D-MN), wants to change that by limiting the tax deduction for CEO pay to 25 times that of the company’s lowest full-time salary.

Federal Reserve Chairman Alan Greenspan should address the “wealth effect” of soaring CEO stock fortunes. Instead, he’s raising interest rates, hurting low- and middle-income workers who are finally benefiting from the booming economy.

Why should low-income Americans with no net wealth pay for wealth inflation at the top?        Z

Holly Sklar is co-author of Shifting Fortunes and Divided Decade, both available from United for a Fair Economy (www.ufenet.og).