Soaring stocks send CEO salaries sky-high
Average compensation for company heads is up 36 percent, compared with3.5 percent for workers.
Someone has to take credit for the America's economic boom. So, why not the boss?
That's what the nation's chief executive officers are doing. Proxy statements coming out this spring show stock options, bonuses, and buckets of money pouring into pin-striped pockets. And the soaring stock market has made some of the corporate heads very, very rich indeed.
In some ways, the soaring compensation is merely reflecting the overall economy. The Dow Jones Industrial Average is hitting records almost every day, and Wall Street is exuding optimism.
That message is reaching the boards of directors, who watch company share prices closely. As some stock prices have soared, bonus plans have clicked into place. In addition, compensation specialists say, the labor shortages that exist in the workplace extend to the upper echelon of companies as well. So companies, in an effort to keep their executives from moving to greener pastures, dangle some of that high-flying stock.
"Wall Street is at the heart of this," says Cindi Fukami, a professor at the Daniels College of Business at the University of Denver. "So much is predicated on shareholder value."
Total compensation, including stock options, is up about 36 percent, according to Graef Crystal, editor of the crystalreport.com, an Internet newsletter on executive pay.
"It's moving up at a very rapid rate," says Mr. Crystal, who is known for his independent and critical analysis.
By way of comparison, the Bureau of Labor statistics reports the average worker saw total compensation rise by 3.5 percent. Even the average baseball player saw his pay rise by only 19 percent, according to a study by the Associated Press.
As happens in any year, there are some eye-popping numbers. At Citigroup, Sanford Weill received $141.6 million, and John Reed, his co-head, got $44.4 million. General Electric's chairman, John Welch Jr., pocketed $52.6 million, while Viacom head Sumner Redstone got options worth $50.5 million. The average chief executive officer's compensation has now jumped to $7.8 million per year.
These CEO treasure chests raise the ire of the AFL-CIO's Secretary-Treasury, Richard Trumka who calls this year's pay hikes "outrageous."
The union has set up a Web site (www.paywatch.org), which includes the pay of Fortune 500 CEOs. So far this year, the site has garnered 3.3 million hits. Workers can find out how long it will take them to make as much as the CEO. "Depending on the CEO, it's usually a few thousand years," says Mr. Trumka.
He complains that there is no correlation between pay and performance. He adds some CEOs have built "country club boards" with friends and relatives. "The more we look at it, the more upset we become since workers are still scraping to get by," says Trumka, who made $165,000 last year - the same pay he received in 1995.
Benefits consulting firms beg to differ. They maintain that compensation is increasingly tied to performance and boards carefully award bonuses. "We think bonuses are fair," says Arnold Ross, the chairman of Hirschfield, Stern, Moyer & Ross, a New York-based benefits consulting firm.
INDEED, this year, there are a number of companies where executive compensation either didn't rise or declined. Retailer L.L. Bean in Freeport, Maine, for example, did not give bonuses this year because sales were stagnant.
Mr. Ross cites one of his clients, a major insurance company, which gave one of its top executives a $100,000 bonus this year compared with $3 million the prior year. "He didn't meet the company's budget," says Mr. Ross.
Citigroup, which paid Mr. Weill $141.6 million, tried to make it appear he actually lost money. In a four-page background paper designed to rationalize the expenditure, the financial services company noted that the value of Mr. Weill's stock options had declined 29 percent, "steeper than the 8 percent stock price drop."
Mr. Crystal, for one, does not feel sorry for Weill. He wonders how the bank will be able to ask its employees to sacrifice during tough times.
"Can you see Sandy Weill telling the workers to pull in their belt?" he asks. "People won't take it very seriously." Citigroup declined to comment.
In fact, Ms. Fukayami says the ordinary worker's morale might sag after seeing the boss draw down a giant bonus. "When I'm the guy on the assembly line or answering phones on the customer service side, I have to wonder what happened to the team concept."
Weill's main form of remuneration - stock options - reflects a growing trend. Many young start-up companies without the deep pockets to attract experienced executives offer them stock instead.
"We are finding more and more the influence of the e-commerce companies that are going to the Fortune 1,000 and picking out top level people and paying them a lot of equity to entice them to their companies," says Chuck Sweet, president of A.T. Kearney Executive Search in Chicago.
In fact, a number of executives received relatively low salaries last year. Bill Gates, the chairman of Microsoft Corp., only received $500,000 in direct compensation. But his stock holdings, which are larger than many countries' gross domestic product, insured that he would not be shopping at a Seattle thrift store.
Boston lawyer Gabor Garai, of Epstein Becker & Green, PC, says that among his high-tech clients, there is not a lot of resentment among the rank and file over the new billionaire bosses "because everyone else is making enormous amounts of money in the stock as well." But, he wonders what will happen to compensation levels when the stock market isn't rising.