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August 30, 2000
Report Highlights Executive/Worker Pay Gap
Just in time for Labor Day, a report from Institute for Policy Studies and United for a Fair
Economy stresses excessive CEO compensation.
SocialFunds.com --
At least 17 shareholder resolutions this year addressed linking executive compensation to social
and environmental issues, including the proposals to limit the pay gap between executives and
workers. A recent report draws further attention to this issue, pointing out that the pay gap is
deliberately neglected by this fall's high-profile presidential campaigns.
 The report, "Executive Excess 2000," was
published this week by the Institute for Policy Studies (IPS), a progressive research and education
center in Washington, DC, and United for a Fair Economy (UFE), a Boston-based organization
promoting economic equality. The two groups assert that while the CEO pay explosion disturbs most
Americans, the issue is largely absent from campaign issues and threatens to undermine democracy in
the U.S.
"Particularly with Richard Cheney on the Republican ticket, we shouldn't be
surprised that the major candidates are ignoring the problem of excessive CEO pay," says IPS Fellow
Sarah Anderson. Cheney received compensation worth an estimated $38 million, including future stock
options, when he retired recently as chairman of Halliburton, an leading petroleum services company
and the nation's fifth largest military contractor.
According to "Executive Excess 2000,"
CEO pay jumped 535 percent in the 1990s, dwarfing the 297% rise in the S&P 500, 116 percent rise in
corporate profits and 32 percent increase in average worker pay. If average pay for production
workers had grown at the same rate, instead of barely outpacing inflation, their 1999 annual
earnings would have been $114,035 instead of $23,753, and minimum wage would now be $24.13 an hour,
instead of $5.15.
The new report spotlights earnings among Internet executives, many of
whom are being hotly pursued for campaign contributions by both major political parties. For
instance, the CEOs of the top 50 Internet companies held unrealized stock options with a combined
value of $11.7 billion, or about five times the combined net worth of the bottom one-third of
American households. Sixty-four nations have Gross Domestic Products less than $11.7 billion.
"Executive Excess 2000" also examines how exorbitant pay in the private sector can undermine
the public sector, by making it hard to lure skilled people across the widening pay gap. Public
employees are cashing in on their government experience to work in the private sector, making more
money by attending a few board meetings of companies instead of regulating them.
For
example, last year former Treasury Secretary Robert Rubin earned more than $21 million from
Citigroup, a company that owes its existence to legislation Rubin helped push through Congress.
Former SEC Chairman Richard Breeden and at least five former SEC commissioners are directors at
Internet-based businesses, with potential ethical consequences.
"The good news is that
these trends are not irreversible and there are specific steps that can be taken to rein in
excessive CEO pay," says UFE Co-director Chuck Collins. The report makes recommendations for
reversing the widening wage gap through legislation, living wage ordinances, and investor activism.
The history of shareholder resolutions concerning executive compensation began in 1992,
when the Securities Exchange Commission (SEC) ruled that such proposals would no longer be
considered "ordinary business" issues, excludable from proxy statements. Since that time, dozens of
shareholder resolutions have raised the issue of CEO compensation, often linking it to
environmental or social performance.
For instance, this year a resolution at American
International Group asked management to review executive compensation policies, considering factors
such as linking compensation to financial and social performance and a comparison to worker
salaries. The resolution won the support of 6 percent of shareholders, a typical level of response
for this issue. The same resolution at General Electric got 6.65 percent support.
"Proxy
advisory services are far more reluctant to recommend support of resolutions deemed to limit
executive pay than they are other resolutions, such as those related to diversity or the
environment," said Scott Klinger, co-director of Responsible Wealth, a project of UFE. "In this age
of excess there is virtually no public debate over the question of how much is enough, or how much
incentive does one person need."
The report from UFE and IPS stands to bring that debate
to the forefront, as an important criticism of the current competition leading up to the
presidential election. In the mean time, social investors will continue to put pressure on
companies to bring executive compensation back to Earth.
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