Yesterday, the Institute for Policy Studies (IPS), a Washington-based think-tank with a liberal leaning released their report entitled "Executive Excess 2010: CEO Pay and the Great Recession". In case you weren't aware of IPS, here's how they describe their organization:
"IPS is a community of public scholars and organizers linking peace, justice, and the environment in the U.S. and globally. We work with social movements to promote true democracy and challenge concentrated wealth, corporate influence, and military power."
On to the report.
IPS notes that America's CEOs had a pretty rough year in 2009. Over the past year, we have been reminded that CEOs have been suffering along with the proles; their compensation packages have suffered exactly the same as the rest of us during the Great Recession of 2009. In contrast, here's the first paragraph of the survey:
"Two years into the worst economic crisis since the Great Depression, executive pay — after adjusting for inflation — is still running at double the 1990s CEO pay average, quadruple the 1980s average, and eight times the average executive pay in the mid-20th century."
From a chart in the report, we can see that the median annual CEO pay (adjusted to 2000 dollars) for the top 50 largest United States firms rose from $1.8 million in the years from 1980 to 1989, to $4.1 million in the years from 1990 to 1999, to $9.2 million in the years from 2000 to 2005 and dropped (oh the carnage!) to $8.5 million in 2009. By comparison, the wages of the sweaty masses have dropped and people are taking home less now than they did in the 1970s in inflation-adjusted dollars. To put the whole picture into context, in the 1970s, very few CEOs made over 30 times the salary of their average worker. In 2009, the CEOs of the top 50 U.S. companies had compensation packages that averaged 263 times the compensation received by their workers. Think about it. When you compare the purchasing power of your compensation, has it kept pace with your cost of living and, more importantly, how do your historical compensation package increases compare to those at the top of the pile where you work? At the same time, you could ask yourself how many CEOs do you see suffering with their 40 foot yachts and 8000 square foot mansions with 5 bathrooms?
What is even more annoying about this whole scenario is that, in 2009, IPS reports that the CEOs who slashed the number of their employees by the greatest number, took home 42 percent more compensation that the year's average chief executive pay for S&P 500 companies. To use the numbers from the report, the slasher CEOs average compensation totalled $11,977,128 compared to $8,419,411 for the average S&P 500 CEO. That's a $3,557,717 reward to the CEOs who helped some of their employees pack their boxes and take an extended unpaid vacation without benefits.
Let's look at who the report names, the companies they work for, their compensation and how many people these fine gentlemen tossed to the cold, hard streets of America. The layoff time period falls between November 2008 and April 2010. As in the report, these CEOs are named in order of compensation.
The Top of the Heap Award goes to Fred Hassan of Schering-Plough. His compensation, including a $33 million golden parachute after his company merged with Merck, totalled $49,653,063. Oh yes, and Schering-Plough/Merck turfed 16,000 employees. As an aside, the merged firm had profits of $12.9 billion in 2009, up 33 percent over 2008.
The First Runner Up Award goes to William Weldon at Johnson & Johnson. His compensation package totalled $25,569,844 up from $23 million in 2008 despite the fact that his company was faced with the recall of many of its products. During the time frame noted above, the company laid off 8,900 of its hard-working, but apparently surplus, employees.
The Second Runner Up Award goes to Mark Hurd at Hewlett-Packard. His compensation package for 2009 totalled $24,201,448 - perhaps he came in third because he only sent 6,400 employees packing during the time frame of the study. I guess the HP Board must have forgotten about the 24,600 job cuts announced in September 2008. According to some employees at HP, there have been far more layoffs than reported in the IPS study. In this particular case, as your mother always told you "what goes 'round comes 'round"; Mr. Hurd got turfed on August 6th, 2010 for misconduct. Unlike the rest of us who sweat when we work, Mr. Hurd's severance consists of $12.2 million in cash and $16 million in stock. I don't know about you, but I think I could live on that for a couple of years...well, maybe a year!
The Mr. Congeniality Award goes to Robert Iger, CEO of the apparently not-so-family-friendly Walt Disney Company. His compensation package totalled $21,578,471 and he sent 3,400 members of the Disney family on an extended (and permanent) vacation to the Magic Kingdom found on the streets of a city near you.
I don't want to bore you with any more names and numbers, but the next 6 companies on the list are IBM, AT&T, Wal-Mart, Ford, United Technologies and Verizon.
One section of the report that should not be missed is the chart showing the highest-paid executives at bailed-out companies like Citigroup, Bank of America, JP Morgan etcetera. It's more than a bit nauseating when one sees that John Havens, CEO of the Clients Group (basically the head of Investment Banking) at Citigroup had a 2009 compensation package totalling $12,126,261 after Citigroup got $50 billion in bail-out funny money. That's $958,310 in bail-out money for each of the 52,175 Citigroup employees that were laid off during the time frame of the study.
What can we, the powerless proles, do about this situation? Here are three ideas:
1.) If you don't like what a company who falls into this category is doing to its employees or how they're rewarding their CEOs, simply do your business elsewhere. There's nothing like dropping sales and the resulting drop in profits to shake up an executive team.
2.) If you live in the United States, contact your government representatives at federal and state level and demand that no additional bail-out funds go to firms that lay-off staff at the same time as they continue to reward senior executives with obscene bonuses and stock options. If, in fact, the economy does descend into Part 2 of the Great Recession, the same corporations that came to the government with hats-in-hand looking for spare change will not think twice about coming back again. This is the time to ensure that Part 2 of the Great American Corporate Bail-out does not happen.
3.) If you hold stock in any company or companies, ensure that you read through their annual disclosure documents to educate yourself on their executive compensation practices. If enough shareholders forward resolutions regarding pay reforms ("say on pay") at annual meetings, eventually corporate leaders will get the message (hopefully). Make certain that you vote your proxies in favour of any shareholder-led resolutions that seek to limit executive compensation. If you chose not to vote or to vote with management, the system will never change.
I hope that you will take the time to read the entire IPS Executive Compensation Survey. While you may find your blood pressure rising as you read, at the very least, you will be a better educated investor and consumer.