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September 06, 2006
The Ratio of Greed: Report Pierces Numbing Numbers of Executive Excess
by Bill Baue
United for a Fair Economy and Institute for Policy Studies publish 13th annual study examining CEO
compensation, which continues its upward trend while worker pay stagnates.
SocialFunds.com --
Children know if they constantly push the envelope of outrageousness, this behavior becomes
normalized such that parental power is ineffective even against the most egregious conduct. CEOs
seem to have taken this strategy to heart, judging from the latest Executive Excess study
from United for a Fair Economy (UFE) and
Institute for Policy Studies (IPS)--their 13th
annual CEO compensation survey.
 The ratios reported in the study for 2005 illustrate
this effect perfectly. CEO-to-worker pay: 411-to-1. CEO pay of the 34 defense companies surveyed
compared to Army private pay in 2005: 308-to-1. CEO pay of the 15 oil companies surveyed compared
to oil industry average worker pay: 518-to-1. These ratios, and similar statistics scattered
throughout the report, are so consistently obscene that they numb the senses, creating a sense of
powerlessness and inevitability in the face of such overwhelming evidence of greed. Yes, the
executive compensation bubble is unacceptable, but what is one to do when the trend is so
entrenched?
The report, written by Sarah Anderson and John Cavanagh of IPS and Chuck
Collins and Eric Benjamin of UFE and edited by Sam Pizzigati, crystallizes both the problem and
potential solutions vividly. It focuses on two industries--defense and oil--and documents how CEO
pay in these sectors have ballooned, inflated in large part by global conflict. For each sector,
the authors provide an overview of compensation problems, spotlight top CEOs packages, and
recommend solutions.
The authors choose telling details to highlight the problem. For
example, they quote from a "blistering" seven-page letter responding to last year's report from
Jack London, CEO of defense contractor CACI International (ticker: CAI), arguing that defense
executives deserve much more pay than military generals.
“Generals are responsible for
their command, just as CEOs are responsible for work they perform and the livelihoods of their
employees and respective families," Mr. London states. "However, CEOs of publicly owned companies
also bear additional fiduciary responsibilities to their shareholders, financial markets and
federal oversight groups. Generals do not."
"Companies are accountable for profitable
performance and sustained customer satisfaction. Generals are not," he continues. "Because of the
varied and differing, and additional responsibilities, CEOs are currently rewarded additional
compensation."
Interestingly, Mr. London does not point out that generals hold
responsibility for the very lives--and deaths--of soldiers under their command.
Among the
problems with wartime profiteering the authors identify is the risk of creating a profit motive
"for continuing the conflict or getting into new ones in other parts of the world," pointing out
that the so-called War on Terror has no defined ending point.
The authors also quote Lee
Raymond, departed CEO of ExxonMobil (XOM) who raked in almost $70 million
last year, testifying before Congress in November 2005 that rising gas prices reflect nothing more
than global supply and demand.
"We are all in this together, everywhere in the world," Mr.
Raymond told Congress.
The statistics speak otherwise. If "we" were indeed in this
together with Mr. Raymond, our compensation would be rising alongside his. However, the report
documents how average CEO pay has risen almost 300 percent since 1990, while corporate profits have
increased a little more than 100 percent and average worker pay has risen only 4 percent--and the
minimum wage has actually decreased almost 10 percent (all in 2005 dollars). If we were all in the
same boat with the same rising tide as CEOs, we average workers would be earning $108,000 instead
of $28,000 today, and minimum wage would be $22.61 instead of $5.15.
"It should be a
source of national shame that the federal minimum wage has remained at $5.15/hour for nine years,
despite the rise in inflation over these years," the authors state.
After pricking our
numbness with such choice anecdotes, the authors provide a clear map of potential solutions. For
defense companies, the report recommends wartime pay restraint, both mandated and voluntary, and
strengthening government over wartime contracts such as Harry Truman established during his Senate
tenure before becoming president. However, bipartisan bills to create a modern-day Truman
Committee on wartime contracts have languished in both the Senate and the House of Representatives,
according to the report.
For oil companies, the report recommends rebating oil windfall
profits--Congressmembers such as Byron Dorgan (D-ND) have proposed a 50 percent tax on profits on
sales of crude oil above $40 per barrel, exempting profits on production of renewable fuels. It
also suggests eliminating taxpayer subsidies for the oil industry, including $5 billion a year in
tax breaks from 16 subsidies, and subsidized use of public lands for oil companies. Senator Dianne
Feinstein (D-CA) has proposed legislation requiring oil companies to pay higher royalties on oil
extracted from public land during emergency periods of high oil and gas prices.
The report
also recommends tying executive remuneration to environmental performance.
"Stock option
rewards for top oil company executives should reflect responsible performance, including
performance on mitigating climate change, not just oil barrel price increases completely unrelated
to an executive's own performance," the report states.
Stepping back, the report advances
a number of broader recommendations applying beyond the defense and oil sectors. While it applauds
the July 2006 Securities and Exchange Commission (SEC) rules requiring enhanced transparency, the
authors opine that "they don't go far enough."
"In the end, we need to be talking about
power, not just pay," the report states. "Addressing the root causes of excessive executive
compensation will require our society to address, more seriously than ever before, the grotesque
imbalances of power that currently define our contemporary Corporate America."
©
SRI World Group, Inc. All Rights Reserved.
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