CEO Greed is Out of Control

by Holly Sklar

Z magazine, June 1998


When's the last time you had a 224 percent raise? Don't laugh. That's what American Express CEO Henry Golub got last year. Average CEO pay went up 35 percent in 1997 to $7.8 million, according to Business Week's recent executive pay survey. Even without all the extras like subsidized luxury housing, gourmet meals, country clubs, top-notch health care, and investment advice, average CEO pay comes to $150,000 a week.

Average worker pay went up 3 percent last year-all the way to $424 a week. Workers still earn less in wages, adjusting for inflation, than they did in the 1970s.

The average CEO made 326 times the pay of factory workers last year-up from 209 times factory workers' pay in 1996. Back in 1980, when many more workers were unionized, the CEO-worker wage gap was much smaller: CEOs made 42 times as much as factory workers.

To get a good picture of the growing CEO-worker wage gap, imagine the Washington Monument. That's what the Boston-based organization United for a Fair Economy (UFE) did. UFE found that if the 555-foot Washington Monument reflects average 1997 CEO pay, then a replica representing average worker pay would be just 21 inches tall. The Workers Monument shrunk almost a foot in a year. In 1996, it was 32 inches. Back in 1970, the Workers Monument was 13 feet, 6 inches tall-reflecting a CEO-worker wage gap of 41 to one.

UFE built the Workers Washington Monument and unveiled it at a Capitol Hill press conference for the National Campaign to Close the Wage Gap. UFE co-director Chuck Collins says, "In 1970, it would have required a pick-up truck to transport the Workers Washington Monument. By 1996, you could carry on an airplane and put it in the overhead luggage bin. The 1997 model fits easily in the little space under the seat. If current trends continue, the 1998 Workers Monument will fit in my pocket."

You can check out your favorite companies in Business Week and at the AFL-CIO's web site on CEO The AFL-CIO tells you how many workers or U.S. presidents it would take to match the pay of particular CEOs and shows you how much health insurance, day care, and other goods CEO salaries could buy. You can also compare your own salary to that of CEOs.

Up, Up, and Away

The really big money is not in CEO salary and bonuses, but in their stock options, long-term incentive plans, and other perks. Top-earning CEO Sanford Weill of the Travelers Group made a hefty $7.4 million in salary, but $223.3 million more in stock options and other long-term compensation, for total 1997 pay of $230.7 million. That's over $4 million a week. In 1996, Weill made a mere $94.2 million. The planned merger of Travelers and Citicorp has already swelled Weill's fortune by boosting the stock prices of both companies.

CEOs are benefiting greatly from the recent cut in the long-term capital gains tax from 28 percent to 20 percent. For every $1 million in long-term capital gains on the sale of stock, they'll pay $80,000 less in taxes.

The 1997 pay survey doesn't "even reflect the largest single option sale ever," says Business Week. In December, Disney CEO Michael Eisner exercised 7.3 million stock options worth over $400 million. But, since the sale came after the close of Disney's fiscal year, Eisner's windfall won't show up until next year's pay survey. Eisner has more stock option fortunes to come.

Corporations keep finding new ways to enrich their CEOs. A growing number of companies are paying multi-million dollar "retention bonuses" to CEOs who have no intention of leaving. "From huge signing or retention bonuses to perks such as tax planning and jet use in perpetuity, to exit packages that guarantee big bucks even if an exec is chased out of office, financial risk is virtually eliminated," says Business Week.

Take the former head of Apple Computer, Gilbert Amelio. As the Wall Street Journal noted in its executive pay report, Apple lost nearly $2 billion during Amelio's brief tenure of 17 months. Some 3,600 employees lost their jobs. Amelio's golden parachute included $6.7 million in severance pay plus other compensation. Amelio said the Apple package "didn't protect my downside as well as I had hoped it would. "

In their report, Executive Excess: CEOs Gain from Massive Downsizing, United for a Fair Economy and

the Institute for Policy Studies feature a "Downsizer Dozen" of "CEOs who rolled in the dough while dumping thousands of workers."

The "Canned-Id Camera" award went to Eastman Kodak who downsized 20,100 workers while putting CEO compensation through the enlarger. CEO George Fisher's total 1997 compensation, including stock options, was $17 million. Kodak has announced new layoffs this year, estimating an additional 16,600 layoffs by 1999.

Whirlpool Corporation got the "Putting Workers Through the Wringer Award." Whirlpool announced 4,700 layoffs in 1997 and gave CEO David Whitwam a 133 percent hike in total compensation. In January, Whirlpool announced additional layoffs of 3,200 workers.

American Express got the "Don't Lose Your Job Without It Award." The company announced layoffs of 3,300 workers in 1997. CEO Harvey Golub reaped a 224 percent pay increase, bringing his total compensation to $33.4 million.

The "Pink Slip Barbie" award went to Mattel. The company announced over 3,174 job cuts in 1997 and gave CEO Jill Barad $10.7 million.

Wall Street executive Julian Robertson says it well: "Everybody here is overpaid, knows they are overpaid and is determined to continue to be overpaid." Management guru Peter Drucker has long been disgusted with the "unconscionable greed of CEOs." In an interview with Wired magazine, he endorsed banker J.P. Morgan's idea that the proper ratio "between the top people and the rank and file should be twenty-fold, post-tax...Beyond that, you create social tension."

Right now, taxpayers help pay for outrageous CEO salaries because corporations can deduct them as a business expense. The Income Equity Act, introduced by Rep. Martin Sabo (D-MN), would cap the deductibility of executive compensation at 25 times that of the lowest paid full-time company worker. The act now has over 45 co-sponsors.

The Income Equity Act is one of the measures supported by the National Campaign to Close the Wage Gap, which has over 300 member organizations. To learn more about the campaign, visit the United for a Fair Economy web

If the minimum wage had kept pace with CEO salaries since 1960, reports Executive Excess, the 1997 minimum wage would have been nearly $41 an hour.


Holly Sklar is the author of Chaos or Community Seeking Solutions, Not Scapegoats for Bad Economics and a member of the board of United for a Fair Economy.

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