Corporate America's CEO pay heist
April 30, 2004 | Page 5
THE U.S. economy lost jobs again last year--even though it entered the third year of a "recovery" from recession. But as NICOLE COLSON and ALAN MAASS report, Corporate America's biggest bosses couldn't resist giving themselves a big fat raise anyway.
"I'M A little embarrassed about it." That's what United Technologies Corp. CEO George David had to say about his paycheck for 2003--a cool $70.5 million.
He should be embarrassed. But he won't be alone. According to Business Week magazine's annual review, paychecks for CEOs at the biggest U.S. corporations in 2003 were "off-the-charts amazing." Overall compensation--including salaries, bonuses and long-term compensation deals like stock options--for CEOs at the country's 365 largest companies increased by an average of 9.1 percent last year, Business Week found.
After two years of declining, the ratio that compares CEO pay to the wages of an average worker was on the rise again--climbing to 301 to 1. That's down somewhat from the record heights set at the end of the 1990s "miracle economy" bubble.
But the filthy rich bosses of Corporate America are still raking it in--thanks to skyrocketing overall compensation that, from 1990 to 2003, increased eight times faster than the rate inflation, more than six times faster than average workers' pay, nearly three times faster than corporate profits and almost double the pace of the booming stock market.
In 1982, the ratio of CEO pay to the wages of an average worker stood at 42 to 1. Today, it is beyond 300 to 1. If the minimum wage had increased as quickly as CEO pay since 1990, it would be $15.71 an hour today.
The already huge gap between those at the top of the corporate ladder and the rest of us is hard to comprehend. Think of it this way. In 2003, the average U.S. worker took home $517 in their weekly paycheck, according to the liberal group United for a Fair Economy. CEOs at the largest U.S. companies pocketed an average of $155,769 every week.
Leading the Business Week list of CEO looters for 2003 was Colgate-Palmolive CEO Reuben Mark, who banked $141.1 million. Like other top CEOs, most of his compensation came in the form of various stock options--typically, schemes that give top executives the opportunity to buy large amounts of company stock at bargain-basement prices.
Not even counted among the salaries and bonuses and stock options are the luxurious perks of running a U.S. mega-corporation. For example, Coca-Cola CEO Douglas Daft gets to use company aircraft for personal travel whenever he wants--and the company even picks up the taxes he runs up. Wells Fargo & Co.'s Richard Kovacevich got $67,044 to cover mortgage interest on the purchase of his house in San Francisco.
It isn't hard to see who pays the price for Corporate America's CEO pay heist. For example, John Tyson, the chair and CEO of Tyson Foods got a total compensation package worth more than $20 million last year. Meanwhile, after 11 months on strike, union workers at the Tyson food processing plant in Jefferson, Wis., accepted the company's hard-line deal--including a wage cut for new hires, a decrease in maximum pay, a freeze or elimination of pensions, cuts in vacation time and huge increases in employee health care costs.
Tyson isn't an exception either. In fact, CEOs who squeeze workers the hardest typically enjoy bigger salaries and bonuses as a reward. In 2002, for example, CEO Sam Palmisano oversaw 15,000 layoffs at IBM. The company's board of directors awarded him a $4.5 million bonus and stock options worth nearly $47 million for leading IBM "through extraordinarily difficult times."
Swinging the layoff ax is a lucrative move for top executives. In 2002, CEOs at the 365 largest corporations surveyed annually by Business Week averaged $3.7 million. Chief executives at the 50 companies with the most layoffs got $5.1 million. Overall, median CEO compensation at the 50 layoff leaders rose by 44 percent in just that one year.
The CEO pay bonanza is only one symptom of the ever-widening gap between the already super-rich and the rest of us. Between 1973 and 2000, the average income for the bottom 90 percent of taxpayers fell by 7 percent, after accounting for inflation. At the same time, the income of the top 1 percent of taxpayers rose by 148 percent. The income of the top 0.1 percent rose by 343 percent, and the income of the top 0.01 percent by 599 percent.
Business skips out on taxes
ANOTHER REASON for the huge paydays for CEOs is that corporations today are paying just a fraction of the taxes that they once did. A report released in April by the General Accounting Office (GAO) found that more than 60 percent of U.S.-based corporations reported owing no taxes whatever from 1996 through 2000--boom years for the U.S. economy.
Those that did pay taxes, according to the GAO, were able to shelter much of their income. Thus, an estimated 94 percent of U.S. corporations reported tax liabilities amounting to less than 5 percent of their total income in 2000.
In other words, big business is getting away with murder on their tax rates.
Many people point the finger at the Bush administration for this corporate highway robbery. But don't expect anything different from the Democrats. According to presidential hopeful John Kerry, reducing corporate taxes is a good thing. "Some may be surprised to hear a Democrat calling for lower corporate tax rates," Kerry told a Detroit crowd last month. "The fact is, I don't care about the old debates. I care about getting the job done and about creating jobs in America."