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The scandal over executive pay
by Dan K. Thomasson
Scripps Howard News Service


March 28, 2005

Washington - Humorist Will Rogers was addressing a national banking group during the Depression. He opened his remarks by saying that he was delighted to be there, but that he wished that he would be invited back when the other half of the group's membership got out of jail.

It was funny, but it wasn't because it came at time when the image of corporate America and those who help finance it was at an all-time low and millions of Americans were suffering the worst economic deprivation in the history of the country.

While there may be only slight similarities, an increasing number of Americans concerned about the dramatic loss of jobs to outsourcing are beginning to regard overpaid executives of public companies responsible for this trend about the same way they did about the financial manipulators in those dark days. That resentment is aggravated by a growing realization that what a top executive makes these days has very little to do with the success of his company or his own investment in it.

In fact, it almost seems to be more lucrative not to have met the highest performance standards, with any number of chief executives deemed expendable walking away with huge and continuing amounts of compensation for their pain and suffering. For instance, when Carly Fiorina, once considered among the most successful female executives, was pushed out of Hewlett Packard's top job for poor performance, her trauma was eased by a $42 million exit package.

In any number of instances, executives eased out the door receive lucrative consulting contracts although they were sent packing in the first place because of bad advice and policies and despite the fact they have been made hugely wealthy by stock options and other benefits during their tenure.

No one, it seems, can just get fired cleanly and for cause these days, at least not those who have managed to work themselves into the top pay grades. Even those caught dallying with an underling walk away with huge pension claims. Harry Stonecipher, shoved out the door by Boeing for an affair with a female employee, is eligible for $600,000 a year in pension benefits. And Fannie Mae, the huge mortgage company, says it owes Franklin Raines, who left the company's top position after accounting problems, nearly $15,000 a month in benefits.

Why, one might legitimately ask, should stockholders put up with this? The answer is, they don't. But despite growing complaints from shareholder groups and institutional investors over the last decade, a recent study has shown that bonuses in the top 100 companies in 2004 grew by 46.6 percent to a median of $1.14 million. And according to another study recently reported, all public U.S. companies paid their top five executives between 1993 and 2002 a total of $260 billion.

Executive pay amounted to about 6 percent of total corporate profit from 1993 to 1997, but that increased to 10 percent from 1998 to 2002. More startling are the figures for companies whose shares make up the 500 Standard and Poor Stock Index. Average chief executive pay went from $3.7 million annually in 1993 to $10.3 million in 2002.

Even when the company seems to be doing badly with a sharp decline in stock value, it often doesn't seem to rub off on the chief executive.

Often, the exorbitant pay and benefits result from overly friendly boards of directors who frequently have been recruited by the chief executives themselves. There also is a tendency for boards to try to avoid too much public attention when changing leaders and to keep those being ousted from taking legal action. But the onslaught of scandal in corporate America, added to the steady loss of jobs to overseas sources, has made stockholders and just average citizens far less tolerant of overpaid executives. Some boards whose companies have been embroiled in scandal have begun trying to recover pay and bonuses from their former managers.

In many ways, the Will Rogers analogy is more accurate than most would like to admit. While the differences are many, the similarities are enough to be pertinent. At the time he made his remarks, the highest paid corporate executive in America was making about $550,000 - and that was for a private company. Today, that would be considered relatively low.


Dan K. Thomasson is former editor of the Scripps Howard News Service.

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