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House Dems Look at Conflicts Behind CEOs’ Fat Pay |
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Talk about an inside job. It’s little wonder that CEO pay continues to soar when the consulting firms many corporations hire to determine executive pay levels also earn millions of dollars for handling other consulting work for the same company. After all, why tick off the top honcho of the company that signs your checks?
This morning, the U.S. House Committee on Oversight and Government Reform explored the role that “conflicted consultants” play in fueling the soaring CEO pay rocket. Says committee chairman Henry Waxman (D-Calif.):
Last year, 113 Fortune 250 companies retained conflicted consultants. These consultants typically receive $200,000 to advise the company about executive pay—and over $2 million to provide others services, like benefit administration, to the company.
Consultants who are paid millions of dollars by a corporate CEO won’t provide objective advice to the board. They know what the CEO wants to hear and they know what will happen to their lucrative contracts if they don’t say it.
How much are CEOs raking in? A CEO at a Standard and Poor’s 500 company on average received $14.8 million last year—a 9.4 percent pay raise over 2005. In the past decade, CEO pay has jumped an average of 45 percent, while workers’ wages squeaked ahead by 7 percent. Waxman notes that CEOs of the nation’s largest companies now are paid 600 times more than what the average worker earns. Not to mention the $100 million-plus “Golden Parachutes” that many top execs get when they retire.
Many of the CEOs reeling in these multimillion dollar pay packages don’t steer their firms to big profits, but to big losses—yet their pay packages increase. Dan Pedrotty, director of the AFL-CIO’s Office of Investment, told the committee today:
Companies that use compensation consultants tend to pay their CEOs higher salaries without getting better performance.
Consider the role that Hewitt Associates played as the compensation consultant for Verizon. CEO Ivan Seidenberg received $19.4 million in salary, bonus, restricted stock and other compensation in 2005, 48 percent higher than what he earned the previous year, while its stock fell 26 percent and earnings fell 5.5 percent. A New York Times article in April 2006 reported that Hewitt also received more than half a billion dollars in fees from Verizon since 1997 for employee benefit and HR services to the company.
In May, 46 percent of Verizon shareholders voted for a proposal by the Communication Workers of America (CWA) calling on the company to disclose any relationships that could compromise any compensation consultants’ independence. After months of stalling, Verizon announced Nov. 1 it would abide by the shareholders’ proposal.
Many of these conflicted compensation consultants are flying under shareholder radar. A report by the oversight committee staff finds in 2006,
over two-thirds of the Fortune 250 companies that hired compensation consultants with conflicts of interest did not disclose the conflicts in their SEC [Security and Exchange Commission] filings. In 30 instances, the companies informed shareholders that the compensation consultants were “independent,” when in fact they were being paid to provide other services to the company.
The committee report also finds that the tighter the relationship between the compensation consultant and the company, the faster and higher CEO pay rises.
In 2006, the median CEO salary of the Fortune 250 companies that hired compensation consultants with the largest conflicts of interest was 67 percent higher than the median CEO salary of the companies that did not use conflicted consultants. Over the period between 2002 and 2006, the Fortune 250 companies that hired compensation consultants with the largest conflicts increased CEO pay over twice as fast as the companies that did not use conflicted consultants.
Earlier this year, the AFL-CIO, along with a group of investors, sent a letter to the heads of compensation committees of the 25 largest U.S. companies, asking for an end to the practice of board-hired comp consultants also doing work for company management.
Pedrotty said that while it was encouraging that Verizon and some other firms are adopting rules to strengthen consultant independence, more must be done.
The types of consulting work that consultants perform should be limited to their role as advisors to the compensation committee. As a first step, the SEC should require that companies disclose the total amount paid to consultants and the amount paid for executive compensation advice provided to the board of directors.
While disclosure is an important first step, investors ultimately need the tools to hold consultants accountable. Given the scope of conflicts and the central role of consultants in “pay for failure,” we believe an up or down vote on the company’s compensation consultant, in any context where a conflict existed, would be appropriate.
For more on CEO pay, visit the AFL-CIO Executive PayWatch website.
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Several years ago my husband and I were in Norway. His cousin took us on a tour of a steel processing mill where he worked. As were walking through the plant, he motioned toward a man working machinery and told us that he was on the board of directors. By Norwegian law, 40% of the board of directors are working employees, and I believe they are elected by the workers. A simple thing, but it gives Norwegian workers a better deal than the American system of greed and dirty ethics behind closed doors gives our workers.
This horror takes place in many industries, In the Airline business, employees took an emergency reduction in pay to prevent the companies from going banktupt after the 9/11 murders. The CEOs did not take a cut but an increse along with huge bonuses and the “emergency” cut in pay for the emplyees still is in effect seven years later.
Dear Granny on the warpath -
What a concept: fairness! Fairness and justice are the antithesis to global capitalism. When will working people wake up to that fact and begin acting in their own best interests? When that happens, they at the same time will be acting in the best intetrests of their families, friends and neighbors.
By working together we can resolve our nation’s health care crisis, stop the theft of workers’ pensions, keep our jobs from being shipped offshore, properly fund public education, stop the unjust and illegal war on Iraq, and humanely take care of a host of other pressing problems.
And guess what? Corporate big-wigs ans stockholders would still rake in huge amounts of money. Although - under such a scenario - they may not receive all they want, they’d get much more than they need (and in many cases deserve).
I spent 31 years working for a company that started out privately owned. As the business grew, and went public, we were owned by several different companies, but always operated under the same name. I knew we were in trouble when we were bought the last time, and our stock went from Vons to Safeway.
The entire operations of the company began to change, as people at Vons corporate headquarters waited for their jobs to be eliminated—no need to duplicate positions,they said, but unsaid was a greater need to shuffle operations to right-to-work states. This company eliminated thousands of good California jobs, and then soon after forced a strike in an attempt to break the unions in the warehouses and stores.
All we ever heard was how they needed a level playing field to compete with WalMart. But what were they really competing for? Market share? Or bigger salaries and perks for the CEO and the Board, like those of the WalMart family? (And their pals, like Hillary?)
Point is, workers and their families always lose to the CEO’s. We no longer enjoy all the benefits we used to, and new hires have to pay for their medical once they qualify. I was eligible early on in my employment; now, if I were newly hired, it would be months before I could add my family, let alone buy coverage for myself.
There is a corporate culture of greed that is so pervasive in this country; why the people on the frontlines doing all the work are treated like parasites is a mystery to me. I was willing to give my all while the company treated us well; now—not so much. And they wonder why no one wants to stay on the job!
Although, I’m sure they would prefer that no one stay longer that five years, so they could eliminate that pesky retirement along with the medical. How about a crappy 401k, heavily invested in the company that hates you, instead of a pension?
Corporate America needs to have a refresher course in ethics and humanities. There is enough wealth to keep the wolves away from everyone’s door; to concentrate it at the top— at rates hundreds of times greater than the average worker’s pay— is just wrong.
The criminal activities from the President and most all the rest of those in government will not stop untill the citizens of this country demand the changes that we need. In my opinion if we don’t stand together and make such a fuss(what ever it takes) it will continue and get much worse.
Working men and women need to take a stand against greedy corporations that threaten and intimidate workers from forming unions. We all need to take a stand against right to work laws. We need a LRNB that actually enforces the laws that are supposed to protect workers. Instead of wrist slapping companies that break these laws, the NLRB needs to levy stiff fines that will actually keep the culprits in check. We need for politicians to fight to keep jobs in the U.S. instead of creating more free trade acts. We the voters who put said politicians into office need to vote them out if they continue to let the American workers down. It’s time for us, the American workers to take a stand and start protecting not only our futures, but our childrens futures. Start getting informed about how our government is running our country. Or should I say ruining our country. Don’t sit back and wait for the next guy to do something. What am I doing? For starters I’m voting. And a union buddy and I are working on getting the right to work law repealed in Virginia. It’s a slow process in it’s beginning stages. But we have set goals and we will gain momentum as we progress. The thing is, you can’t do anything if you just sit back and watch.
STAND UP, FIGHT BACK!
SOLIDARITY