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‘Long Overdue CEO Pay Reform Plan Not Enough’ |
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Friday, 20 January 2006 |
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When CEOs of firms with the most underfunded pensions jeopardize their employees’ retirement while receiving massive salaries and benefits, the system needs reforming, union leaders say. The average CEO now gets paid 431 times more than a U.S. worker’s average salary, while CEOs who head up corporations with underfunded pensions make 72 percent more pay than the average large company CEO, according to a new report.
For example, at United Airlines, where employees have made about $4 billion in pay and benefit concessions, 400 executives will divide stock options worth some $480 million when the company comes out of bankruptcy, which could be as early as next month. Glenn Tilton, chief executive of United’s parent, UAL Corp., would receive a stock package worth more than $40 million.
CEO pay has risen exponentially in recent years: In 1980, the average CEO pay was 42 times more than a worker’s pay, according to Executive Excess 2005: Defense Contractors Get More Bucks for the Bang, by the economic and social justice advocacy groups Institute for Policy Studies (IPS) and United for a Fair Economy (UFE).
Although the federal Securities and Exchange Commission (SEC) on Jan. 17 proposed new—and long overdue—rules to disclose the total pay for corporate chief executives, they are not enough to completely reform executive pay, says AFL-CIO President John Sweeney.
“The AFL-CIO supports improved disclosure of CEO pay, and we will participate in the SEC’s rule-making process,” Sweeney says. “However, we firmly believe that increased disclosure alone is not sufficient to reform executive pay. Ultimately shareholders must be empowered to more easily nominate their own directors to serve on board compensation committees.”
The SEC’s proposed reforms, the first in 14 years, would require publicly traded companies to use “plain English” to disclose what they are giving top executives, including salaries, severance payments, stock-option grants, retirement benefits and such perquisites as borrowing the corporate jet for vacations. Shareholders would see a single dollar figure in proxy statements, annual reports and registration statements summing up all rewards for the CEO, chief financial officer and three other highest-paid officers, as well as all directors.
The public will have 60 days to comment on the proposed rules once they are published in the Federal Register.
CEO Pay Explodes Over 14 Years
The report by IPS and UFE found the pay of the average worker remained nearly flat at $27,460 from 1990 to 2004, adjusted for inflation, while average CEO pay has risen from $2.82 million to $11.8 million.
If the federal minimum wage, now at $5.15 an hour, had risen as fast as CEO pay since 1990, the lowest-paid workers in the nation would earn $23.03 an hour today.
The report found that CEOs also are profiting individually from the Iraq War, with huge average raises at the biggest defense contractors. Among the 2004 top 100 defense contractors—publicly traded companies such as United Technologies, Textron and General Dynamics—average CEO pay increased 200 percent from 2001 to 2004, versus 7 percent for all CEOs.
Legislation to Give Shareholders a Say
In November 2005, Rep. Barney Frank (D-Mass.) introduced the Protection Against Executive Compensation Abuse Act (H.R. 4291), which would, if enacted, give shareholders a genuine say on executive pay. The bill would require corporate boards to win shareholder approval of their annual executive pay plans. Companies would have to disclose all the compensation paid to top executives every year in an executive compensation plan that goes to shareholders.
In these annual plans, corporations also would have to indicate “the short- and long-term performance measures or targets” that will determine future executive pay. The bill currently is in a House Financial Services subcommittee.
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