Outrageous CEO Pay Costs Workers, AFL-CIO Tells Congress

by Donna Jablonski, May 25, 2006

Outrageous CEO pay and perks aren’t just obnoxious—they cost workers, Brandon Rees, assistant director of the AFL-CIO’s Office of Investment, told a congressional hearing today. 

“Executive compensation abuse takes dollars out of the pockets of shareholders, including the retirement savings of America’s working families,” Rees told the House Financial Services Committee. Led by Rep. Barney Frank (D-Mass.), all 33 Democrats on the committee demanded the hearing on a bill proposed by Frank that would give shareholders a real voice in CEO pay decisions.

Today, the average pay for the CEO of a major company is 431 times the worker’s average pay, up from 42 times in 1980—an imbalance Rees says is “not sustainable” and “not in the long-term interests of a company, its shareholders or employees.”

Skyrocketing CEO pay and massive retirement packages, detailed at the AFL-CIO’s Executive PayWatch website, are dangerous for three reasons, according to Rees: (1) Pay is not matched to CEO performance, (2) shareholders often are in the dark about pay and perks and (3) today’s CEO compensation packages, heavy with stock options, actually give executives an incentive to manipulate accounting results.

Earlier this year, the Securities and Exchange Commission proposed the first major update of its executive compensation disclosure rule in more than 14 years. The changes would improve transparency and compensation disclosure. Rees says that’s a good start, but the added teeth in Frank’s bill, the Protection Against Executive Compensation Abuse Act (H.R. 4291), also are needed.

Frank’s bill would require companies to set and disclose pay-for-performance goals and take back CEO compensation that was not awarded accurately. It also would require shareholder approval of compensation plans and, when corporate control changes hands, executive golden parachutes.

Ridiculous executive retirement packages are particularly offensive as companies are shedding and under-funding employee pensions left and right.

Lee Raymond opted for a lump sum of $98 million from Exxon Mobil—while the company’s employee pension plan has a $11.2 billion funding deficit. Pfizer CEO Henry McKinnell can choose an annual pension of $6.5 million or an $83 million lump-sum payment—although Pfizer’s stock price has fallen nearly 50 percent under his leadership. IBM CEO Samuel Palmisano’s pension is worth $4.5 million annually, although IBM recently froze its pension for employees.

And Home Depot CEO Robert Nardelli will get $4.6 million a year in retirement, while his employees don’t even have a defined-benefit pension plan. Today in Wilmington, Del., union members are rallying at Home Depot’s shareholders meeting in support of a proposal by AFSCME’s pension plan to require an advisory vote on CEO pay.

Excessive executive compensation, Rees says, “is a red flag that there is a power imbalance in the corporate boardroom,” where director conflicts of interest, CEO self-evaluation and unaccountable boards shoot CEO pay out of control. The only way to break the cycle, Rees says, is to give real power to shareholders.

Print This Article | E-Mail This Article |Comments (0)