In a little-noticed development, America's top corporate leaders are already facing pay cuts.
The moves, which range from bonus cutbacks to shrinkage in stock-options values, come as the impact of accounting scandals reaches a crescendo with calls for new checks on CEO compensation.
Corporate directors are displaying a tough new attitude. Several boards have cut executive bonuses in the past year. And at a recent Stanford University conference attended by about 150 directors, a major emphasis of participants was how to stand up to CEO requests for higher pay.
Large investors are increasingly troubled by gargantuan executive pay packages. At Bank of America, in a rare breaking of ranks with management, a majority of shareholders recently approved a resolution to let shareholders vote on severance packages, dubbed "golden parachutes."
Falling share prices are imposing pay discipline of their own. Last year, as the value of stock options fell along with the stock market, average CEO compensation at major companies dropped from $13.1 million to $11 million, according to the Institute for Policy Studies in Washington.
While much of the reason has to do with a three-year slump in stock prices and an economic slowdown, the plunge in pay also reflects tougher attitudes that have been emerging as a host of corporate scandals sober up those responsible for setting executive pay.
It follows a decade when chief executive officers saw their salaries soar along with investor faith in the ability of managers to engineer stellar performance.
"There is a sense that these huge pay packages are not productive, but counterproductive," says Kenneth Bertsch, director of corporate governance at TIAA-CREF, which manages $275 billion of pension money. Today, compensation committees of corporate boards "are in more cases pushing back" against executives asking for more money, he says.
Some executive bonuses have been cut. WorldCom Inc. this week sued its former chief financial officer, Scott Sullivan, seeking return of a $10 million bonus. Failing Polaroid Corp. changed a plan to pay at least $5 million in bonuses to top executives after employees and retirees protested. In May, Ford rescinded bonuses from last year for 6,000 senior managers who had collectively received $442 million in 2000.
At FleetBoston Financial Corp., CEO Terrance Murray and his successor, Charles Gifford, had their salaries frozen in March at 2000 levels and bonuses cut in half. But they did win lucrative pension plans from their board.
Because of their desire to remain collegial with CEOs, boards find it tough to cut their pay. But shareholder resolutions seeking some form of executive pay restraint are getting far more backing than in the past.
Besides the Bank of America vote, 12 other efforts to limit severance pay won an average 32 percent of shareholder votes, according to the Investor Responsibility Research Center. Trade union and some other pension funds, with huge holdings of corporate stock, are often backing such initiatives.
Also, important voices in politics, regulation, the investment community, and the corporate world itself are calling for changes in the executive pay system to bring greater moderation.
Senator John McCain (R) of Arizona, for instance, says top executives should be required to keep much of their own company stock for as long as they hold their jobs. The idea is to make CEOs think long-term.
The Business Roundtable, an association of 150 top CEOs, has dropped its opposition to a New York Stock Exchange proposal of last month that companies seek shareholder approval for new stock-option plans. The Big Board proposal is expected to win approval of the exchange's members Aug. 6. Companies listed on the NYSE would then have to comply.
Last year, CEOs of firms that chopped 1,000 or more workers from their ranks saw their average pay and bonuses drop from $3 million in 2000 to $1.8 million last year, according to Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies.
However, the AFL-CIO found that median pay (rather than average) grew in 2001 by 7 percent meaning half of all executives made more and half made less. Some two dozen elite corporate chiefs took pay cuts, lowering the average. But the majority of CEOs still got raises "despite flagging corporate performance," says William Patterson, director of the labor group's office of investment.
In some cases, boards gave CEOs extra valuable stock options to offset cuts in bonuses. Cisco Systems CEO John Chambers took only $1 in base salary, but got a huge option grant.
Other groups are calling on corporations to list new stock options as an expense on their books. Expensing options would not only discourage huge grants to executives. It would make corporate books give a more accurate picture of a firm's financial situation, proponents maintain.
Long-time critics of soaring executive pay are encouraged by these developments. For the first time in a decade, they see a chance that the rich compensation packages that exploded in the 1990s may subsiding now.
"There is a narrow window for attention," says Chuck Collins, program director at United for a Fair Economy, a Boston group.
President Bush, concerned about fall elections, spoke about executive pay in his speech Tuesday on corporate responsibility. He called for CEOs to comply with the spirit of existing disclosure rules by explaining how their compensation packages are in the best interests of their companies.
One complaint from critics is that Bush didn't call for requiring companies to expense new stock options against revenues. Options have been the biggest factor pushing CEO pay in big corporations to 458 times the wage of ordinary workers.
Percentage gains during the period from 1990-2001:
Chief executive pay 463 %
S&P 500 stock index 248 %
Corporate profits 88 %
Worker pay 42 %
Inflation 36 %
Source: Institute for Policy Studies and United for a Fair Economy