Congress Pecks Away at CEO Pay
David R Francis Columnist of The Christian Science Monitor, The Christian Science Monitor
Maybe, at last, corporate executive pay is being tamed.
Three years ago, Business Week magazine headlined a story on executive pay, "The Gravy Train May Be Drying Up."
It didn't happen. Last year, chief executive officers at 350 large American corporations enjoyed an 8.9 percent average boost in direct compensation (salary, bonus, benefits, and long-term incentives), finds Mercer Human Resources Consulting, in New York. Median compensation for the CEOs was $8.2 million. Half got more, half got less.
But Congressman Barney Frank, the Democratic chairman of the House Committee on Financial Services, suspects that a bill passed by the House April 20 "will retard that rate of growth substantially." Over time, he said in a phone interview, the gap between the pay of the top boss and that of average workers could narrow.
For most working Americans, at least those who didn't get a promotion or take a better job, their inflation-adjusted pay has been falling or flat for many years.
By 2005, the CEO-worker pay gap had grown to 411 to 1, compared to 107 to 1 in 1990 and 42 to 1 in 1980, according to United for a Fair Economy (UFE), a liberal advocacy group in Boston. A CEO makes more pay on Jan. 1 than most employees get for a full year of work.
"All the economic benefits of the last two decades are going into the pockets of the people at the top," complains Michael Lapham, director of UFE's Responsible Wealth project.
Gradually, Americans have become more aware of what critics term "obscene" or "greedy" executive pay packages. Frequent scandals involving executives cooking corporate books and backdating stock options to their financial benefit have further damaged their reputation. And now the politics have changed.
Addressing business leaders on Wall Street in February, President Bush said, "The salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders."
There's no correlation between CEO pay levels and corporate performance, charges Mr. Frank, a Newton, Mass., representative.
Frank's bill passed by a 269 to 134 majority, with the support of 40 RepubA-licans. It requires that shareholders (the owners of public corporations) be allowed to vote every year in an advisory capacity on compensation packages.
If, in the future, the compensation committees of boards that set CEO pay levels tend to ignore the objections of many shareholders to high executive pay packages, "then we will do something more," Frank warns.
Frank's "say on pay" bill was quickly introduced in the Senate by Sen. …