[IMC-Boston-Editorial] Column on CEO pay from United for a Fair Economy

Tue Sep 13 14:46:12 PDT 2005

Greetings,
Would you be interested in running this column on out-of-control CEO pay?
Please let me know.
Regards,
Betsy Leondar-Wright
United for a Fair Economy

PAY FOR PERFORMANCE?
by Liz Stanton

Some CEOs get paychecks bigger than the entire economy of some small
countries. How can this pay be rationalized? Often it¹s justified as Œpay
for performance¹. This should mean more or less what your mother always told
you: work hard, keep your nose clean, and you¹ll receive all of the rewards
that hard work merits.

The average U.S. CEO was paid $11.8 million last year, presumably for his or
her performance  for hard work and a clean nose. If CEO pay is supposed to
be an accurate indicator of company performance, then investing in the
companies that pay the most to their CEOs should be a great investment
strategy, right? Guess again.

If you had, starting in 1991, invested $10,000 in the stock of the company
with the highest paid CEOs  each January 1st moving your investment to the
company with the previous year¹s highest paid CEO  you actually would have
lost money. Between 1991 and the end of 2004, your investment would have
shrunk to $8,079  disastrous by any standard. In comparison, if in 1991 you
had invested your $10,000 instead in a fund receiving the average return of
the Standard & Poors 500 index, you would have $48,350 in your pocket today,
almost six times more than a stock portfolio betting on Œpay for
performance.¹

So much for CEOs¹ hard work, or at least CEOs¹ effective work. How about
those clean noses? Charles Wang of Computer Associates has the dubious
distinction of delivering the worst stock performance in the year following
his rise to the top of the highest paid CEO list. In 1999, Wang took home
$655 million. Months later, the company announced a business slowdown,
questions about its accounting practices emerged, and the stock price
collapsed, losing 72 percent of its value within a year after Wang¹s
windfall. In the years that followed, Computer Associates admitted to
accounting lapses including a Œ35 day month¹ -- i.e., keeping the books open
past month¹s end in order to book additional sales. The company restated its
2001 and 2002 earnings, reversing $2.2 billion in Œimproperly booked¹  that
is, non-existent  revenue.

The trend toward earnings-inflating Œaggressive accounting¹, and in some
cases outright cooking of the books, has been one of the most important
drivers of excessive CEO pay. Among the ten highest paid CEOs over the ten
years from 1995 through 2004, eighteen of these 100 slots were filled by
CEOs whose companies were either later found to have committed fraud or have
been forced to make revised earnings statements to correct previous
overstatements of profits. The prevalence of book-cookers on the list of ten
highest paid executives peaked in the year 2000, when half of the executives
were later found to be presenting faulty accounting statements.

Best known for $6,000 shower curtains and a two million dollar birthday
party underwritten with corporate assets, Dennis Kozlowski of Tyco
International was the book-cooking CEO that took home the greatest amount of
pay over the last fifteen years. Convicted of misappropriating $600 million
of corporate assets, Kozlowski is presently awaiting sentencing of up to 30
years for his crimes. Between 1990 and 2003, when he left the company,
Kozlowski pocketed more than half a billion dollars in pay and perks.

Far from pay for performance, some CEOs seem to be getting paid for just
having a pulse. The average CEO made 431 times more than the average
production worker last year, and over 1100 times more than someone working
full-time at the minimum wage. Since 1990, the average production worker¹s
pay has increased by 4% after inflation, compared to 319% for CEOs. In the
same period, the value of the minimum wage dropped by over 6% after
inflation. New data released by the Census Bureau last week shows that real
median household income is stagnant, while the percentage of people living
in poverty in the U.S. is on the rise.

American workers expect and deserve fair pay for hard work and clean noses,
not pay for pulse, pretenses, or pilfering. If workers performed as badly as
CEOs, they¹d be fired or Œoutsourced¹  not enticed with stock options,
country club memberships, and cash bonuses just to grace the executive suite
with their presence.

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Liz Stanton is the Research Director of United for a Fair Economy and
co-author of ŒExecutive Excess 2005¹.

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Word count: 703

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Betsy Leondar-Wright
Communications Director, United for a Fair Economy
(617) 423-2148 x113
29 Winter Street
Boston, MA 02108
http://www.FairEconomy.Org

United for a Fair Economy is an independent national organization
that raises awareness of the damaging consequences of concentrated
wealth and power.

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