OLEAN -- We will return this week to a subject once much-ignored but previously explored in this space, the "income gap" or "CEO excess" in corporate remuneration. These days, columnists and reporters all over the country are writing about it on a daily basis.
First, a few stark statistics:
In 1965, my first year out of college, I found myself working for New York Telephone, a subsidiary company of AT&T, which at the time enjoyed a government-guaranteed monopoly. My salary was $7,900 a year, then considered a princely sum. In that year, chief executive officers -- CEOs -- of American corporations made, on the average, 24 times more than the ordinary working stiff in the United States. I didn't complain. Nobody did. In those days, CEOs were considered worth every penny for running such huge firms that underpinned the U.S. economy.
By 1978, that ratio of CEO compensation to staff and production line salaries was 35 to 1. In other words, for every dollar the average company grunt made across this land, the CEOs made 35.
"Compensation" in these comparisons includes salary, bonuses, incentive pay, stock grants, stock options, and other stipends -- all salary and supplements that constituted take-home or usable personal income from the company.
By 1982, the ratio was 42 to 1. By 1989, the ratio was 71 to 1. By 1990, it was 107 to 1. By the turn of millennium in 2000, CEOs were making 143 times the pay of line workers. By 2003, the numbers were 301 to 1. By 2004, it was 431 to 1. The corporate greed index is now so vast, has risen so high and so fast, that no one really knows the precise numbers for 2005 and last year, but several groups and experts keeping score believe the ratio to be more than 500 to 1. In 2005, with gasoline prices at the pump starting to zoom into the stratosphere and tearing apart middle-class family budgets, Big Oil CEOs were averaging $32.7 million a year in salary and perks.
In the past 25 years, the Gross Domestic Product for the United States has risen 67 percent. Yet there are now 37 million Americans in poverty, almost 13 percent of the population -- the highest percentage in the developed world.
In the past quarter-century, if you are the average John Q. Wage Earner, your take-home has risen 18 percent. The top CEOs have averaged 200 percent. If the federal minimum wage had grown as fast over the same period, it would be $25 an hour and the average American worker would be making $110,126 a year instead of $27,460.
Between 2000 and 2005, the median CEO pay rose 84 percent in this country. The median worker pay declined about one-half of 1 percent.
Put another way, in 2005 -- the last full year for which numbers have been worked out -- the average working stiffs in the United States made about $400 less in a whole year than the average large-company CEO made in one day, which was $42,200.
In one damn day.
Is there anything about these numbers that makes the words "fair" and "equitable" pop into your mind?
Now, protests everywhere finally seem to be rising about the gross imbalance inherent in such figures -- mostly from stockholders aggrieved that executives running corporations in which they've invested money without favorable consequence are being awarded outrageous bonuses despite the poor performances of their stocks.
The current poster boy for this syndrome seems to be Robert Nardelli, who stepped down as Home Depot CEO earlier this month in the wake of vociferous shareholder discontent. At the time of his departure from the home improvement giant, Nardelli was making $38.1 million a year, but the real clamor occurred when he was awarded a "golden parachute" severance package of $210 million. This, despite the fact once-reliably upward Home Depot stock had not risen since he took the helm six years ago, and in fact had dropped 6 percent during his tenure.
Home Depot's competitor company Lowes enjoyed a tripling of its stock price in the same six-year period that Nardelli served. The Lowes CEO made a mere $7.5 million a year.
Many observers wondered aloud: Aren't all these bonuses supposed to reward successful stock performance? Isn't that the raison d'etre for the avalanche of all these controversial and obscene pay packages?
The Wall Street Journal -- which never seems to see an example of mammoth corporate compensation it doesn't like -- portrayed the media fuss as envious bellyaching, and commented, "This may be unpleasant for reporters and other egalitarians to hear, but it's a fact of the marketplace."
The WSJ, which has become a patsy for Big Business, no matter how egregious the corporation, is way off base in describing the American press as "egalitarian" -- which means affirming political, economic and social equality for all.
Get real. Members of the American media are instead notoriously slack these days in pointing out such gross but boring inequities as the compensation ratios listed above -- preferring instead to obsess on which celebrity is sleeping with whom, and who's failing to wear underwear in public on any certain evening.
And there's news aplenty about this subject. Just before Christmas, USA Today did manage to pick up on an amazing public utterance by the president of the San Francisco Federal Reserve Bank, Janet Yellen. The language was exceedingly rare for a top officer of the central bank, and in times when commentators and market-makers were more alert, might have driven down or pushed up stock prices in general.
Yellen -- in urging that a wider and stronger social net be established in this country -- dared to impeach the sacred money-making shibboleth of CEOs everywhere: globalization.
Assembly-line workers are much more likely to define the popular word as "sending our jobs to undeveloped nations where slave laborers can produce huge profits," but banker Yellen observed the inequality of American incomes has risen to such a level that "there are signs it is intensifying resistance to globalization, impairing social cohesion, and could, ultimately, undermine American democracy."
Pretty strong words for a central banker. She concluded, as reported by Sue Kirchoff of USA Today, that "inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people."
Home Depot is not the only company that rewards poor-performing CEOs.
At Sun Microsystems -- a once-celebrated company whose stock is down more than 90 percent from its 2000 peak -- specific performance guidelines were ignored a year ago to give CEO Scott McNealy, already the firm's largest individual shareholder, a "discretionary" bonus of $1.1 million, even though the corporation failed to meet its own meager earnings targets. The Sun Microsystems board of directors said there was a "one-time need" to recognize the CEO's performance.
As USA Today's Barbara Hansen and Gary Strauss reported, McNealy not only made $11.8 million exercising 2005 stock options, but was granted new stock options worth $7.6 million last year. All this for presiding over a firm that has seen its stock in free fall for half a decade.
Alan Johnson, a top official in compensation consulting firm Johnson Associates, told the national newspaper that "we chronically overvalue CEOs."
Paul Hodgson, pay analyst at the governance watchdog group The Corporate Library, said in the above USA Today article, "It's still business as usual at most companies. It's all about keeping up with the Joneses. There's still a disconnect between paying for performance and actually delivering it. There's no shame factor."
The renewed attention to CEO compensation is spurring further news stories from Capitol Hill and will likely result in lots of press and public attention to committee action in the new Congress controlled by Democrats.
Outspoken Massachusetts Democrat Barney Frank, chairman of the House Financial Services Committee, told National Press Club listeners three weeks ago that "inequality" in the American economy is occurring despite economic growth and that it is "prompting citizens to oppose reasonable economic policies that foster growth."
Frank implied he may introduce or co-sponsor legislation fostering unions, tying labor and environmental provisions to trade agreements and pushing for universal health care. Frank would like to make a "grand bargain" with pro-globalization leaders in which they support policies designed to reduce inequality and the income gap if he supports business-friendly policy on issues such as direct foreign investment, immigration and global trade.
Lorna Aldrich, writing for the National Press Club Record, quoted the colorful Frank as telling members of the media, "A rising tide is a good idea if you have boat."
Few Americans, he noted, have an economic "boat."
Trickle-down economics, concluded the Massachusetts rep, "fails when there is no trickle."
None of this will make any difference if so many corporate greedballs still insist on pulling down huge and unjustified salaries and benefits.
| Niagara Falls Reporter | www.niagarafallsreporter.com | January 23 2007 |