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Mr. Robert B. Reich,
Secretary of Labor during the Clinton Administration. Currently Professor of Public Policy at the University of California at Berkeley.

Re: CEOs Deserve Their PayArticle by Robert B. Reich. Wall Street Journal’s Sep 14, 2007 eastern edition pg. 13


Educational Editorial ©

by William M Wright BBA MBA - Window To Wall Street® 10-05-2007

Mr. Reich, your article presented a rational justification for todays CEO movie star style pay, using Exxon's recently retired CEO, Lee Raymond. I can understand your desire to win over the Wall Street Journal CEO Reader’s before your surprise closing statement.

We would consider it an honor if you would examine another pro-capitalist and shareholder point of view. Be sure to read the articles at the end of this editorial and view the video reports on CEO pay, perks and golden parachutes alone with the new CEO who spent $1.2 million to remodel his office during the worst financial crisis since the Great Depression. (continued below)

 

 

 

Educational Editorial © continued from above

by William M Wright BBA MBA - Window To Wall Street® 10-05-2007


The summation of my point is: CEO pay is not a moral or ethical issue only a rational business cost containment issue.

 

Cost control and cost reduction are standard business principals used by CEO’s for outsourcing jobs and cutting worker wages and benefits to be competitive in a global economy. Shareholders’ see no rational cost controls on CEO compensation by American Boards. There is never a comparision to lower paid Asia, India and European CEO's.

Quid Pro Quo is just as true in the Board Room as in Politics. Compensation committies are made up of the highest wage earners seeking to go higher themselves. Giving the CEO a ton of pay and perks only helps to justify their next jumbo raise.

There are strong controls on average worker wages using words like "We have no budget for increases" or "Raises can not exceed inflation" or "The budget only allows a maximun increase of 4%". But at the very top you'll rarely hear those words. And in many cases it does not matter as you maybe lucky and have a contract guarnteed pay raise in advance of performance. You'll also have special severence and perks that no loyal 25 year employee could hope to obtain.

 

However, I do not believe excessive pay justifies excessive taxes (as in two wrongs do not make a right). Still, raising marginal tax brackets 2-3% as you suggest is much simpler than trying to pass morality legislation on CEO pay. I agree those few who have benefited so much from the Bush administration tax cuts should not complain about a little 2-3% point tax increase given their incomes have gone up 25%-50% while they contained average American worker pay to so little increases.

The Capitalist, business educated, free markets trader within me cries out for American Shareholder elected Boards to make more rational cost containment decisions about senior management pay and special perk compensation. The current system only encourages a two tier system that widens financial and moral inequities between senior management and all other management and workers below - to the point of legal discrimination.

For example - corporations have written severance pay policies (e.g. two weeks for ever year worked) but senior management gets to discriminate by giving themselves guaranteed one or two year severance compensation pay for leaving after working less than two years -instead of the two to four week standard severance pay.

Senior Management also gives themselves downsizing protection through golden parachute guarantees that average workers and managers never get. If these individuals were the creators and sole owners of the business then we could support this action. But they are not. These are individuals who have stewardship of shareholder money.

CEO pay is only the tip of a titanic size tax-free perk ice burger that has been growing larger for 30 years. In the last decade it reached the point of outrageous. You can bet shareholders will not be given presentations on how management is controlling these shareholders cost at Annual Meetings.

 

 

 

 

 

 

No Outcry About CEO Pay In Japan

 

No Outcry About CEO Pay in Japan

For one thing, Japanese executives don't earn nearly as much as Westerners—and the implications are far-reaching

 

That's because most Japanese chief executives don't earn anywhere near the big paychecks of their Western counterparts. CEOs at Japan's top 100 companies by market capitalization earned an average of around $1.5 million, compared with $13.3 million for American CEOs and $6.6 million for European chief execs at companies with revenues of higher than $10 billion, according to an analysis of 2004-06 data by Towers Perrin, a Stamford (Conn.) human resources firm.

 

In recent weeks, the news from Japan Inc. has been a steady drumbeat of layoffs, plant shutdowns, and gloomy earnings forecasts. Yet few CEOs have been shown the door. And there are scant signs that the public and political outcry against CEOs' fat pay packages in the U.S. will be echoed in Japan.

That's because most Japanese chief executives don't earn anywhere near the big paychecks of their Western counterparts. CEOs at Japan's top 100 companies by market capitalization earned an average of around $1.5 million, compared with $13.3 million for American CEOs and $6.6 million for European chief execs at companies with revenues of higher than $10 billion, according to an analysis of 2004-06 data by Towers Perrin, a Stamford (Conn.) human resources firm.

It shows, too. Japan's corporate bigwigs might travel around in chauffeured cars and play golf on the company's dime, but they don't trot around in designer suits, shuttle between cities in private jets, or order up multimillion-dollar houses. And the moment the company's profits plunge, they often take one for the team. Last month, Sony (SNE) announced plans to halve the pay packages for Chairman and CEO Howard Stringer and his top lieutenants, while Honda (HMC) has said its board members will take a 20% pay cut.

Diminished Sense of Responsibility?

Is it time for Americans, then, to imitate the Japanese? Executive compensation experts wouldn't advise it. Japan's system is hardly ideal, they say. In fact, many Western investors argue that Japanese executives get paid too little and that performance should be a bigger factor in determining compensation packages. On average, only about a third of Japanese executives' income comes from stock-option grants (which weren't possible until deregulation in the late 1990s) and bonuses linked to financial metrics such as return on equity and revenue growth, says Naohiko Abe, head of Towers Perrin's Japan office.

 

Contrast that with the U.S., where the ratio is around 80%, and Europe, where it's 60% to 70%. "If they're not paid enough, they feel that they can't be blamed for bad performance," says Barclays Global Investors strategist Takaaki Eguchi. "As investors, we want a system where they're sufficiently paid but also take full responsibility for what they've done."

There are a few signs of a shift toward the West. Cosmetics maker Shiseido, for instance, now appoints outside executives to head its board's compensation committee, which sets executive pay. And more than half of Shiseido executives' pay is affected by the company's stock valuation and a slew of earnings benchmarks. Says UBS (UBS) analyst Hirohisa Shimura: "Potentially it might help Shiseido bring in globally minded directors. To do that, you need to pay more."

 

There are still plenty of holdouts, though. Barclays' Eguchi says senior executives often express their worries that any attempt to raise CEO pay would be frowned upon by the public and voted down by Japanese shareholders.

 

Towers Perrin's Abe figures only about a third of the biggest Japanese companies follow Western-style compensation practices or are leaning toward doing so. "We still need more pressure on companies from Japanese institutional investors, not just overseas investors," says Abe. Still, that's an improvement from a decade ago, when only a handful of companies in Japan were even issuing stock options.

Insular and Opaque

One reason change has come slowly to Japan Inc. is the insular nature of corporate boards. Directors are typically company insiders whose entire careers have been spent climbing the corporate ladder. The same goes for the CEO, whose two- to four-year term is usually followed by a stint as chairman and later a few more years on the payroll as senior adviser. Even when a company has a bad year, the board rarely votes to oust the boss, says Waseda University professor Katsuyuki Kubo. Last December he co-authored a paper in Japanese Economic Review that relied on two decades of data to show there's little correlation between Japanese executives' compensation and their firms' return on assets—which measures how efficiently a company uses its assets to generate profits. "Japanese presidents aren't rewarded for improving shareholder value. Our data show that U.S. CEOs get paid about 100 times more for raising shareholder value than Japanese presidents," says Kubo.

Transparency might help, too. Unlike in the U.S. and parts of Europe, Japanese securities rules don't force companies to give a breakdown of individual executives' annual pay. Instead, companies release aggregate income figures, which don't shed much light on how much execs are paid or how their compensation is calculated. On this, not even a global giant like Sony—which experts applaud for its progressive compensation practices—has budged. Sony reported last year that it paid its seven senior executives $22 million in salary and performance-related bonuses, but it doesn't offer a breakdown. For the past six years, Sony's board has rejected a proposal submitted by the Osaka-based shareholder activist group Shareholders Ombudsman to disclose compensation figures for the company's top five executives. Last year, the proposal won support from less than 40% of shareholders, far short of the two-thirds majority it needs to pass. 

 


 

The list of special compensation perks ranging from free use of corporate jets (even in retirement) to interest free loans and guaranteed reimbursement for housing depreciation and income tax payment is ten miles long. Is it legal to give guaranteed excessive signing bounces and golden parachutes to senior executives? Yes. Is it morally or ethically correct? That depends upon which side of the fence you are on. Does it adhere to the basic business principle of rational cost control? Absolutely not!

Your rationalization for today’s over paid and over perked senior executives is basically: Today’s world is more complex and dynamic then 40 years ago. And you feel there is only a small talent pool to draw from of people with CEO experience. And given current investor returns CEO pay can be justified as totally rational, using the current case of Exxon Mobil’s CEO Lee Raymond pay and retirement compensation compared to the appreciation in Exxon’s stock value. Assuming this argument is reasonable; the very same thing can be said for the average Exxon Mobil worker. They are more educated, more productive and according to management in tight supply. Yet, those same Exxon Mobil workers never received even a reasonable proportionate increase in pay, perks and retirement compensation relative to CEO Lee Raymond (and the rest of Senior Management).

Why? Because that would be considered unreasonable pay increases by the CEO who rationalize they must control and reduce expenses.

Lets, be honest with shareholders. Exxon stock did not go up in value because of CEO Raymond. Exxon stock went up because oil increased from under $18 a barrel after the 1997 Asian Crisis to over $95 a barrel in 2007.

For those of us who invested before 2003 we recall when global markets can go down and investor’s lose money. You can bet no comparisons were ever made to learn if CEO pay declined as fast as NASD Stock values did in 2000-2002. And I would not expect Mr. Raymond’s salary to decline because Oil price declines caused Exxon profits and share price declines. Acomparison to stock values is a metric used by senior management to rationalize outrageous pay on the upside but never used to lower their pay when stock values decline for a decade like Wal-Mart, Pfizer, GM or Ford.

 

Your argument that 30 years ago many industry oligopolies existed which made the CEO Job much easier makes a logical generalization from an Economic Professors’ rear-view mirror point of view. But I’ll bet many an old-timer CEO who served on the front lines in the 70'-80's, would disagree with your conclusion.

The world is constantly changing and business has never been static. Reality would suggest only a case by case examination of each CEO's job through history could make a reasonable judgment on which CEO jobs where easy and which more challenging. We would probable conclude degrees of challenge are not correlated to any years or pay.

Flash back to the 80’s when an out of work Ford Automotive legend like Lee Iacocca agreed to work for $1 annual salary and a lot of worthless Chrysler stock option paper. The Chrysler board made a brilliant decision to hire Iacocca and convince him to work for no salary and nothing guaranteed! Iacocca’s job and challenge then was greater than most of today’s CEO’s as Chrysler was on the verge of bankruptcy and America was not flush with cheap money and venture capitalist willing to make risky bets. Sure in-hind-sight it is easy to talk about the millions Iacocca made for being the Chrysler miracle worker. He was a CEO - Chrysler TV Salesman and American Moral Builder. His world was no less dynamic then today. And Iacocca’s challenges were certainly not reduced buy the fact “the big three Automotive oligopoly existed.” They were simply the last three American men standing.
Flash forward 35 years to Ford. Today’s lack of concern over cost control at the top (only the bottom) and those who benefit want shareholders to believe a “CEO is a Born Movie Star”. This thinking causes Ford after losing a record $13 billion in 2006 into hiring Alan Mulally away from Boeing. He is given a $7.5 million dollar bonus just for agreeing to get paid multi-millions annually to be CEO. He received $28 million for 4 months in 2006. For shareholder and unionrelations Ford likes to just point to Mulally only getting a messily $2 million salary. I do not every recall Mr. Mulally every being a big box office draw. Nor does Mr. Mulally come to Ford Motor with a insurance policy that guarantees’ success. He has no automotive experiance. And what has changed? Nothing. The stock is still at its 40 year low. Why? Because there is no quick fixes that Alan Mulally can accomplish faster or better than a lower paid CEO of another name. Mulally has done one thing that Wall Street analyst point to he made the decession to rename the new Ford Five-Hundered the Ford Taurus (both names were prior Ford names) after a ton of branding money had been spent in 2005 to launch the car as the Ford Five-Hundered. Sorry, but my 18 year old son could had come up with that idea for free. Shareholders needed to demand more from a $28 million dollar man.

 

 

Everyone inside any Fortune 1000 company will tell you there are always qualified talented people inside the company who could do the same job for far less shareholder expense. But the rationalization never is one of cost control at the top. It becomes one of political and philosophical posturing. It becomes a popularity contest with lots of upfront cash guarantees’ given away before an ounce of accomplishments in the job!

Just like professional athletes the job and work challenges today’s CEO’s face are no more difficult. They are just much more financial rewarding with far less risk and worry about being out of work -given today’s platinum parachute and up-front (no accomplishments required) jumbo million dollar signing bonus. Yes, there is one big exception, CEO’s are getting so much money pouring in from so many contract guarantees’ that today’s CEO’s need to have personal CPA’s, Lawyers and Money Managers on retainer just to count and manage their money. Iacocca never had that problem in the 70’s.

There is no shortage of talented CEO / Management material in America. There is a surplus of management talent. American downsizing, mergers and businesses moved to China, India and Mexico has left a large reserve of under utilized senior level managers with advanced technical and business degree education between the ages of 50-60. Some out of work (calling themselves retired rather than unemployed) or grossly underemployed. The shortage is myths created by those who benefit from having people believe it. Robert Nardelli is a good man, but it makes no sense to pay a man with no automotive experience to be CEO over the highly regarded automotive man, Tommy La Sorda who’s already been running Chrysler as its President.

Cerberus Capital is private - so we should have no shareholder or public rights to question the wisdom of their decision with their money. I’m only using this as a current example of what often happens in today’s world. Today corporations can easily rationalize what years ago they would have considered illogical thinking.


There is no shortage of human management capital - only rational business sense to control top level expenses. Thousands of qualified experienced American managers get turned down annually for jobs in other industries under the logic “you have no management experience in our industry.” Age discrimination is also a key variable in keeping the shortage myth alive. It is a known physiological tendency for human managers to not hire managers older than themselves. Mid-to first VP level Fortune 1000 management with average ages ranging from 35-45 rarely hire qualified downsized / outsource highly educated and qualified displaced workers above age 50.

While America gives lip service to age-discrimination, even famous CEO’s like GE's Jack Welch (retired) openly talks about how Jeff Emil’s younger age was a critical metric for his board recommendation to select Jeff over two older alternatives. Jeff Immelt is a great leader at any age, but J. Welch’s public discussion about how hiring decisions should be based upon age shows how little progress America has made in the non-existent war against age discrimination.

Everyone reporting on the CEO pay story assumes the CEO is the corporations MVP 24/7. The CEO is the person that gets to fly around the country in the Corporate Jet doing all kinds of fun things while the worker bees keep the company running. Senior management wages and profits are soaring at McDonalds. But we hear no multi-million dollar annual salaried CEO supporting a minimum wage increase after eight years of no raise - while their pay went up 30%. Is that American Super-Capitalism or an American Super-Size-Self-Centered-CEO mentality? Even Michael Jordan couldn’t win one NBA basket ball game it he was the only man on the court.

Exxon Mobil's Mr. Raymond was no J Paul Getty, he did not created Exxon - he inherited Exxon. As an American business educated investor of thirty years, I would say the person who created the empire is worth far more to shareholders and workers (whose jobs they created) then the person who inherits the stewardship of the business and excessive perks.
Cornelius Vanderbilt, Henry Ford, Howard Hughes, J Paul Getty, J P Morgan, Andrew Carnegie, Bill Gates, Paul Allen, Steve Jobs, Michael Dell and The Google Boys, these are examples of Business Rock Stars (along with their financial stakeholders) of exceptional vision and determination who created new American products, services, jobs and industries to compete in a global economy. These are thepeople that created jobs and shareholder value, not the over paid and over perked sheep herder CEO’s with their company paid country club senior management buddies. They should consider it a privilege to inherit such wealth created by others before them. They were not born CEO’s they were simply fortunate individuals who were just one of thousands that could do the same job.

 

 

Here are other considerations to think about on the topic of CEO pay:

No CEO controls the industry environment or the stock market. Exxon stock went up not because of Mr. Raymond but because Oil when from $15 a barrel to $95 a barrel. No-Rocket Scientist was needed to turn around Exxon Mobil.

Comparisons of CEO’s pay to professional athletes pay are common, but the logic is weak. Tiger Woods wins tournaments’ all by himself. And Tiger may only get paid if he places high within the tournament. It would be rare to name any super high paid athletic in any sport and say what did they by themselves and/or with the team accomplish and not have a good answer. I could give you a list of over paid and over perked CEO’s (and senior management) who accomplish little other than getting rich at shareholder expense.

The same is true with comparisons of CEO’s to movie stars. People pay money to see the story because of all the paid marketing promotions capturing their attention. None of that hype was create or paid for by the movie star. Movie Stars are not born they are made by Hollywood.
Yes, the movie star has skills and will draw in loyal fans too. But I buy Exxon gas weekly not because I want to see Mr. Raymond at the pump, but because it is close to my house. Gasoline is a commodity and any women will tell you, Mr. Raymond is no Clark Gable or Tom Curise !

What about comparisons of Pfizer past CEO. The stock declined 60% in value yet the CEO’s pay went up more than 60% during his CEO tenure. Consider the CEO of UnitedHealth whose stock option values were worth over $1 billion. The stock went up in value for a simple reason they raise prices every year.

You can hire any self-proclaimed “compensation expert” to rationalize any compensation. But that does not mean hundreds of other qualified canadates would not be happy to do the job for millions less.
You will always find management discussion about what they are doing to control cost or lower cost but why no discussion on controlling senior management pay and perk cost? This shareholder does not believe in Government Wage Control or Federal tax rates in excessive of 35%. But the facts clearly show that either senior management is grossly overpaid and over perked….or average workers are grossly underpaid. And it could be a combination of both.
The Wright Solution®: Treat a CEO opening like any other job. Request open applications with the range of compenstation expected by each applicant to enable the selection person(s) to consider rational business cost vs. benefits prior to a final selection.

Listen to these few 2006 examples of outrageous management compensation and perks paid by shareholders. Ask your-self would these be approved if put to a shareholder vote of even high networth individuals? If these were part of required Annual Shareholder Meeting decisions on controlling senior management expense would American shareholder agree these are reasonable and rational business practices?

http://www.youtube.com/watch?v=58KRKrnkiTg

The Wright Business Mantra #5:
“What gets managed gets controlled.” And “He who controls the agenda, controls what gets managed.”

The Wright Solution®: The SEC should simply require limited Management Compensation and Special Perk Cost discussions at shareholder meetings and in Annual Reports.
This is the simplest (non-government intervention) method of shining the light on this closed door management secret to shareholders. While it would give shareholders no more control over compensation it enables a forum for shareholders to discuss these examples at public Annual Meetings.
I believe more public shareholder discussions on how reasonable and rational senior management compensation are to shareholder stock prices would be the ideal marriage of American Capitalism, Shareholder Empowerment and Democratic Principals.

By William M Wright
Window To Wall Street®


Excerpts from Recent Articles:

How Runaway CEO Pay Helped Fuel the Crisis

AFL-CIO Articles & Research on CEO Pay -2008

Over the past several years, CEO pay has exploded at many of the companies responsible for creating the subprime mortgage crisis. Too often, their compensation programs encouraged corporate executives to maximize short-term financial gains at the expense of long-term sustainability. In effect, boards of directors rewarded their CEOs for generating financial results that were often based on taking on irresponsible levels of subprime mortgage risk.

For example, large stock option grants encouraged excessive risk-taking by CEOs to maximize their potential gains through short-term stock price increases. Stock options promise executives all the benefit of share price increases with none of the downside risk. In the worst case scenario, the stock options will expire worthless. In effect, stock options allow executives to gamble with their shareholders’ money at no risk to themselves.

Too many CEOs have their incentive compensation tied to performance measures that rewarded financial results without regard to the risk involved in generating those results. At some companies, focusing on revenue growth encouraged CEOs to expand into the subprime lending business at the peak of the real estate market. Return on equity, another popular performance measure for CEO pay, encouraged executives to use increased leverage.

The pay packages of CEOs at mortgage lenders and investment banks also were sheltered from the inevitable decline in the real estate market because many of them were not required to hold their equity awards for the long term. This allowed CEOs to cash out before the bubble collapsed. Large golden parachutes further insulated CEOs from the financial risk of catastrophic results.



The Nightly Business Report – 04/10/2007

Reigning In CEO Pay & Perks
by SUSIE GHARIB

The average CEO received nearly $200,000 in perks last year. But there are extremes. For example, corporate governance researchers at the corporate library say R. Chad Dreier, CEO of Ryland Group, whose compensation was $31 million, received an additional $7 million in perks and benefits. That included the payment of taxes on stock options grants, reimbursement for personal health and services and charitable donations made on his behalf.

http://www.pbs.org/nbr/site/onair/transcripts/070410c/


The New Yorker – The Financial Page 02/13/2006

OverCompensating
by James Surowiecki

According to the economists Lucian Bebchuk and Yaniv Grinstein, between 1993 and 2003 the top five executives at fifteen hundred companies in the U.S. were paid three hundred and fifty billion dollars. That level of pay makes sense only if it leads to better performance.
But plenty of executives are getting superstar pay for journeyman work. Lavish perks—ranging from personal use of the corporate jet to having the company cover the C.E.O.’s income taxes—remain ubiquitous.

More important, it’s becoming increasingly clear that, from a shareholder’s perspective, overpaid C.E.O.s aren’t just expensive; they’re downright destructive. One recent study of the market between 1992 and 2001 by economists at Rutgers and Penn State found that
the more a C.E.O. was paid, relative to his peers, the more likely his company was to underperform in the stock market. The economist
David Yermack, of N.Y.U.,

There are myriad ways in which excessive or poorly designed pay packages can do damage. “Golden parachutes,” which guarantee executives huge payoffs if their companies are acquired, may encourage them to sell out even when the company would be better off remaining independent. Conversely, according to a study by the finance professors Jarrad Harford and Kai Li, very highly paid executives are more likely than their peers to make acquisitions, and to receive major financial rewards for doing so, even when the acquisition ends up destroying corporate value.

http://www.newyorker.com/archive/2006/02/13/060213ta_talk_surowiecki

WSWS.org 04/14/2005

American CEOs Pocket Billions More in Pay
and Perks
by Jamie Chapman

Another survey of 200 large companies performed for the New York Times, found the average CEO compensation to be almost $10 million—excluding profits made on stock options—up 12 percent over 2003.
Meanwhile, the average full-time worker over age 25 struggles to get
by on a mere $683 a week, an increase of less than 1 percent over last year. At that rate, typical non-supervisory workers—who constitute 80 percent of the workforce—would have to work for more than 385 years
to achieve what the CEO brings home in just one.
Among the top earners last year was George David of United Technologies Corp. He cashed in $83.6 million of stock options, in addition to his straight compensation of $11.8 million for 2004. Lew Frankfort of Coach, Inc., a manufacturer of leather handbags and other fashion accessories, pocketed $84 million on stock options, along with a grant of an estimated $120 million worth in new ones.

 

  

  

C-Level Employees Make Shareholders Pay Their Taxes Too

 

 

Top Ten Golden Parachutes

 

$18 Million for 3 Weeks

Avoiding Bail-Out Limits

 

CEO Golden Buy-Out Bucks

CEO Pension PadsBoardroom Pay Soars

 

 

 

Give CEO Pay The Pink Slip -03-22-2009 Article

In 1980, CEOs at Fortune 500 firms were paid 42 times the average worker’s salary. By 2007, they were being paid on average 364 times as much. From 2004-06, top European CEOs recieved less than half of the $13.3 million American CEOs made, on average. Top Japanese CEOs received on average $1.5 million or about 90% less than American CEOs.

Shareholders Want New "Say-Over-Pay" Rules -Fortune Article

 

 

How To Get Rich Milking Shareholders While Creating Nothing

 

 

Why Obama, Congress must curb

CEO pay

By Leo Hindery Jr.

Nov. 5, 2008. Article Excerpt / Complete Article

For most of the past century, CEOs earned roughly 20 times as much as the average employee, according to the Economic Policy Institute, as quoted in The New York Times on Dec. 18, 2005, and again on Jan. 1, 2006. And also for much of the past century, there was nothing like the excesses within the financial industry that we see today, which enable its managers to earn almost obscene levels of compensation — and then get favorable income tax treatment to boot.


Today, however, average public company CEO compensation is 400 times that of the average employee. And thousands of senior managers in addition to CEOs are drinking at the same frothy trough, especially, as we have all just seen, senior managers in the financial services industry.

By contrast, the ratio of CEO pay to that of the average employee has remained around 22 in Britain, 20 in Canada and 11 in Japan.

And with such U.S. exalted compensation, management has so elevated itself above average employees as to have become, in my opinion, a constituency unto itself — and one that, to compound the inequity, largely sets its own compensation.

Incidentally, in 1971 my first boss out of business school, who was then easily one of the nation's top half-dozen public company CEOs, made 10 times my starting salary of $15,600 and about 15 times the salary of our average employee. And throughout the remainder of his exceptional career, I don't think that ratio ever exceeded 20 times, which was a great example to me as I started my own career.

 

 


 

LABOR UNIONS VIEWPOINT & RESEARCH ON CEO PAY


CEO's Facing Bankrupcy

 

Did The Job Become Harder Or Did The Pay Just Become Better?

by William M Wright BBA, MBA - Window To Wall Street® 08-12-2006

Two Automotive Companies facing extinction. Two CEO's. Two paychecks. One facing extraordinary management challenges in 1978 to save Chysler. One facing a similar story 36 years later at Ford. Both situations required solutions. But did Ford need one high paid savior or is a team effort needed? Both required management and shareholder appointed boards to select a rational compentation plan to save these American Brand Name Icons. Lets review the pay plan for these two similar situations.

How has CEO Pay & Perks changed from then to now?

http://www.youtube.com/watch?v=58KRKrnkiTg

John C Bogle former Vanguard Mutual Funds CEO - Pay Views.

http://www.youtube.com/watch?v=di2j7edeAAI

 

Lee Iacoccoa Ledgendary Automotive

Management Man 1950's-80's. Chrysler CEO

and Ford President

Flash Back to 1978: Lee Iacoccoa agrees to be CEO of Chrysler for a whopping base salary of $1 demonstrating to Union Workers and Senior Management sacrifices by all workers will be needed if Chrysler was to be saved from bankrupcy. He did get stock options which only have value if the stock price goes up. In 1979 Iacoccoa needed to secure a $1.5 billion government loan guarantee to avoid bankruptcy. By the early 1980's things improved as a joint venture with Mitsubishi which produce a K-car platform saved Chrysler money. The cars looking back in time, seem ugly but Iacoccoa proved to be a master salesman on national TV in restoring faith in American cars and pride in American union built product quality as Honda and Toyoda began taking more of Detroits "Big 3" car sales. The now popular min-van was lanched during this time period.

By the mid-80's Chrysler was doing well again, all loans were repaid with interest and Chrysler stock went up. Iacoccoa became the 80's CEO icon. He began getting paid an excellent salary for the time and of couse made millions on his stock options. But he started his job with $1, few guarantees and no upfront mult-million dollar signing bonus nor multi-million dollar year end bonus after just four months on the job.

However,Japan car manufactures continued to take sales from the American manufactures (GM. Ford and Chrysler). By the early 90's the "Big 3" were impacted by a slowing economy and loss of sales to Honda and Toyota. The compensation of the Big Three auto executives came under fire by Japanese executives during President Bush Sr's trip to Japan in 1992. Even in 1992 pay experts were criticizing auto industry pay as lavish, when the domestic industry needed to lay off workers, close plants and seek government protection from Japanese competition.

Learn more about Chrysler with this business link.
http://en.wikipedia.org/wiki/Chrysler_Corporation

 

Ford CEO Alan Mulally - 2006-Present

Former President of Boeing Commercial

Aircraft Unit

 

 

Flash Forward to 2006: Ford pays newly hired Alan Mulally a total of $28 million for 4 months on the job in 2006, as reported

by CNN Money. He gets a reasonable $2 million dollar salary but Ford throws out the window a $7.5 million dollar bonus just for agreeing to take the CEO job and it's multi-million dollar annual compensation loaded with a $6 million dollar year end bonus. Did I forget to metion that was just for 4 months on the job. Ford paid an additional $11 million described as an offset for loss stock options he would have been awarded had he stayed at Boeing. The list of pay and perk possiblities requires a full time CPA to calculate and collect money for Mulally.

http://money.cnn.com/2007/04/05/news/companies/ford_execpay/

But wait, we forgot to mention the Mulally family and friends frequent flyer program cost to Ford shareholders. Mulally requested and recieved approval to have his family and friends get free use of the Ford corporate jets for any personal use unrelated to Ford business!

 

The Wright Question©: Name me the companies that Ford Automotive was in a bidding war with to win the super-star services of Alan Mulally who has no Automotive experiance?

You can't think of one - because their were none! Mulally a nice man, for sure, but folks this was not LeBron James on NBA draft day! Mulally had no other offers so maybe just the opportunity to be the next Iacoccoa American ledgend and company paid box seats to Detroit Red Wings, Detriot Pistons, Detriot Tigers and Detroit Lions were all that was needed. Purhaps that would have been more than enough to bring Alan Mulally to Bloomfield Hills Michigan - one of the 5 wealthiest cities in the USA. Michigan's worst in the nation 7% unemployment rate, doesn't seem to have any negative impact on senior management salaries at Ford and GM (they live in Bloomfield Hills).

http://en.wikipedia.org/wiki/Bloomfield_Hills,_Michigan

As Mulally was paid $28 million, Ford reported a record $12.7 billion in 2006 net loss. This while Ford announced the need to close plants and cut over 30,000 jobs. Let's not forget to mention the stock is still at a 40 year low. Sorry stockholders there is no correlation between CEO pay and stock performance. Ford is now the Mulally family golden goose that keeps on giving regardless of if Ford shareholders and workers win or lose.

Wait there's more! Ford executives' use of corporate jets for personal travel cost shareholders almost $1 million in 2006, as Ford, Mulally and Jim Padilla, who retired as president and chief operating officer on July 1, use the jets for all of their business and personal travel.

Mark Fields, the head of Ford's operations in the Americas, used company jets for personal travel at a cost to the company of $517,560 in 2006. Fields's use of the jet to fly back and forth to see his family in Florida on weekends was part of his employment contract with the company. This became a subject of controversy when it was first reported by a Detroit radio station in late 2006. At that time the company had only disclosed Fields use of the jet had cost it $214,479 in the last three months of 2005.

Personal use of shareholder corporate jets is one of the best keep tax-free secret management perks. It's been going on for as long as corporations owned private jets.

As a young accountant fresh out of college I recall my boss (a seasoned fortune 500 accounting manager) joking with me when I tolled him I was talking a greyhound bus to vist my parents in Florida to save money. Smiling he said, "Bill why be so cheap - we fly our dogs to Florida first class." "What dogs?" I replied, "We're a major manufactoring OEM to the big three, why would we have dogs?" He replied,"For our corporate hunting lodge...we need bird dogs for hunting season." I said, "And what has hunting season got to do with manufactoring parts for Ford and GM?". He explained, "Henry Ford II likes to duck hunt so we use it as a tax deductable business entertainment expense". Up until then this young accountant had naively thought getting a business lunchen expense account was the top of the corporate perk ladder. Being a curious person I asked, "So why do we fly the dogs to Florida in the winter if the hunting lodge is in Michigan?" Again he smiles, much wider this time, and responds, "Because the dogs do not like the cold Michigan winters and besides, thats were we keep the corporate yacht in winter." "But how does the yacht get from Lake Huron or Erie down to Florida?" I asked. He responded, "We have a full time yacht Captain on the payroll who will take it out the Saint Lawrence seaway and down the east coast to Florida". Interpeting the look on my face he said, "Bill your young, you'll learn, these are just normal tax-deductable business entertainment expenses that are tax-free perks to business executives" He was right on both points.

The Wright Questions©: Is this level of perks really required to conduct business or did it just evolve into a tax-free perk of the job that everyone comes to expect? Merrill Lynch's recently fired CEO Stanley O'Neal was paid about $290 million in salary, bonus, stock and options for just five years work, according to James F. Reda & Associates. And now everyone talks about what a poor people person he was on top of making bad business bets on the sub-prime market that cost the comany a $7 billion dollar write-off. And instead of the usually one country club membership fees paid at shareholder expense he had three paid by Merrill Lynch! Is too much emphasis being place on one man solutions to justify super sized multi-million dollar compensation packages? What ever happen to the concept of it’s a team effort? Could it be it’s a team job that only rewards a few men with Muti-millions more if the team succeeds? Shouldn't shareholders view CEO pay under the same cost control light used to lower union worker cost? Has any thought been given to outsourcing the CEO job to India or China for half to one third the cost for the same work? Why not consider using the H-1B vesa to import a qualified foreign CEO at 1/3 the cost to shareholders?

Most of us agree extraordinary leaders deserve extraordinary pay. I'd suggest we forget thinking about what is "fair pay" or listening to a "compensation expert" who justifies it by saying, CEO John Smith makes that much so he should too." And who do you think Boards and Compensation Committee's are made up of? No, you will not find any average shareholder or union worker on those Boards or Committee's. They current and former senior exceutives that are motivated to give jumbo compenstation packages so they can get one too.

It is time to start thinking about what is "reasonable" in the context of the "basic business principle of managing cost and world markets." After all isn't that what mangement does now with controlling employee cost? If senior management pay and perks is rising at a 20% annual rate while average worker pay in the same company is only rising 3% then something is absolutely wrong! Forget "fair" who knows what is "fair"? I'm talking managing shareholder cost. No CEO would advise shareholders that annual senior management pay and perk cost have been rising at a 20% annual rate and say thats good for a dieing company like Ford and its shareholders?

We've been telling Union Workers for 40 years they get paid to much for the work they do. But it looks like we've closed our eyes to the management and board art of fleecing shareholders by paying outrageous, extraordinary perks (often tax-free) to less then memorable men of few (if any) job accomplishments.

Most shareholders are aware of the controversy over CEO pay. But CEO pay is just the tip of a growing out-of-control Titanic size iceberg of senior management pay and perks.

How reasonable do these 2006 compensation examples

sound to you? You be the judge.

http://www.youtube.com/watch?v=58KRKrnkiTg

Learn more about individual examples of Outrageous management pay and perks below. Ask yourself The Wright Question: Were these extraordinary people who saved or created companies in the same league as Bill Gates, Steve Jobs, Michael Dell, Ted Turner, Sam Walton, Ray Kroc or Walt Disney?

Five years from now will the company they flecced with the Board of Directors and CEO approval be financial hurt by their departure? No, except for all the missing cash these professional corporate sheep herders and blood suckers legally took for so little work done!


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, (for 4 years work) 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


Most outrageous CEO perks of 2006
-- so far

By Michael Brush

After years of public outrage over gold-plated perks for top execs -- from $6,000 shower curtains to private jets and expensive race-car driving lessons for the kids -- you might think that companies have wised up and cut back on the giveaways.

You'd be wrong.

The perk-fest lives on. So far this year, execs have gotten a bevy of sweet deals that would make former Tyco International (TYC, news, msgs) CEO Dennis Kozlowski proud. Here are a few examples of some of the lavish goodies that companies have showered on execs:

• An outgoing chief executive at Nike (NKE, news, msgs) got $579,649 for home remodeling.

• The new finance chief at eBay (EBAY, news, msgs) will get up to $700,000 if he can't get the price he wants for the Texas house he gave up to take his job with eBay in California.

• A new president at Starwood Hotels & Resorts Worldwide (HOT, news, msgs) will get $1.5 million for airfare during his first year on the job. The money is meant to help him commute to work in New York so he can keep his home in California while his son finishes high school there.

"After all we've been through, you would think boards would be extra diligent about awarding perks that basically waste money with little to show in return," says Daniel Pedrotty, an attorney at the AFL-CIO Office of Investment, which tries to pressure companies to be more responsible with money. "It strikes me as unusual that boards don't have more discipline with company money in light of all the attention this issue has gotten."

"What we have is a major crisis in America with ineffective directors," agrees Don Hodges, president of the Hodges Fund (HDPMX, news, msgs). "When they become directors, they join the country club, so to speak. They forget they are working for shareholders. Probably 85% of them feel like they work for the CEO, so they lay down on the job and give away large chunks of the company."

The companies say that top talent is worth the price, and that competition for that talent creates and legitimizes the need for generous pay packages. But from a shareholder's point of view, it's hard to see how these kinds of sweet deals for execs help. Pay experts believe executive compensation works best when it's linked to performance -- and these execs get their perks no matter how good a job they do.
One solution, says Chuck Collins at United for a Fair Economy, would be to give shareholders greater say in pay packages. "Until compensation packages get approved by shareholders, and not boards that are hand-picked by management, we are going to keep seeing this kind of stuff."

Top prizes

Here's a closer look at some of the juicier perks executives have gotten so far this year, thanks to Michelle Leder at footnoted.org.

• When former Nike Chief Executive William Perez resigned last January after a little over a year on the job, he got a very sweet golden parachute. Nike gave Perez a severance package worth $5.5 million, including $2.8 million that represents two years' base salary and a $1.75 million bonus for 2006 even though he didn't serve for most of the year. Nike accelerated the vesting of restricted stock -- allowing Perez to take another $11 million.
Nike also purchased his Portland, Ore., home for the price he paid, or $3.18 million. But here's the kicker: The company picked up the tab on $579,649 worth of renovations Perez made at the home. Nike also offered $56,500 to cover prepaid athletic club fees if he quits the gym. "If you are making that kind of money, do you really need to have someone pay your athletic club fees?" asks Leder.

All of Perez's severance benefits were built in to his initial employment agreement, responds Alan Marks, the director of media relations at Nike. "In approving Mr. Perez's original employment agreement in November 2004, the board thoroughly reviewed, discussed, and approved these matters and determined at that time that the employee agreement was reasonable."

• At a time when many home sellers have to cut their asking prices to make a deal, eBay has made sure its finance chief Bob Swan is spared this tribulation.
Swan accepted his job at eBay last February, for a $600,000 base salary and a $1 million retention bonus paid annually in five parts. But in early July, eBay threw in a sweetener that shields Swan from softness in the real-estate market in his old hometown of Plano, Texas. The terms of the deal: If Swan has to sell his house for less than the $3 million he paid for it, eBay makes up the difference, up to $700,000.
"This is asking shareholders to protect this guy from market forces, which I think is absurd," says Robert McCormick, vice president of research at Glass Lewis & Co., a consulting firm that advises institutional investors how to vote on proxies. "Like many companies," responds eBay director of corporate communications Hani Durzy, "eBay offers competitive relocation packages to executives to ease the personal and financial burden associated with moving a home and family."

• At a time when the price of a plane ticket keeps going up, the new president of the hotel group at Starwood Hotels, Matt Ouimet, doesn't have to worry about the trend. The hotel chain has given Ouimet $1.5 million in airfare for his first year on the job. Ouimet was hired away from Walt Disney (DIS, news, msgs) earlier this summer by Starwood, which manages Sheraton Hotels & Resorts and W Hotels, among others.

Starwood Hotels says it gave Ouimet the airfare to help him commute from his home in California to offices in White Plains, N.Y., and to Starwood hotels around the world while his son finishes high school.

Given his pay package, you might think Ouimet could pick up the tab -- at least for the commute to White Plains. He'll get $4 million in his first year, including salary, signing bonus, restricted stock and options. In his second year, he will make at least $3.2 million. Starwood Hotels will also pay the taxes on the airfare perk, which will probably cost shareholders another $500,000.

"That's outrageous," says Pedrotty. "First class isn't the worst way to travel, and I am sure it would cost less than $1.5 million." In fact, round-trip, first-class airfare from Los Angeles to White Plains is $1,554 on United Airlines. So a year's worth of weekly trips to New York -- assuming he takes two weeks of vacation -- would set Ouimet back $78,000, or 2% of his first year's pay.

Starwood Hotels spokeswoman K.C. Kavanagh says the airfare subsidy "will allow him to personally visit many more of our properties during his first year than would be physically possible with commercial air travel." The subsidy will also allow him to "spend weekends with his family during his son's final year of high school. This is a cost of doing business to recruit a unique talent," says Kavanagh.

Rising rates? Not for some

• Loans are getting more expensive for most people, but Fedders (FJC, news, msgs) Executive Chairman Sal Giordano doesn't have to worry about interest rates. The chairman has a $6 million interest-free loan from Fedders that he won't have to pay off as long as he works for the company.

Under the terms of a recently inked employment contract for his position as chairman, after his first year on the job his annual contract simply rolls over every day. So his obligation to pay back the loan just keeps getting pushed back, as well. "That's a perk that just keeps giving," says Collins.
Giordano was recently promoted to executive chairman so his son Michael Giordano can take over his position as CEO in October. It's hard to make the case that the loans have helped shareholders. Since early 2004, Fedders stock has slipped to $1.25 from $8. The company declined to comment on the loan arrangement.

• For at least three years, Atari (ATAR, news, msgs) has covered the rent at a Manhattan apartment for Chief Executive Bruno Bonnell. This year, the rent subsidy was upped to $12,200 a month. The rent subsidy doesn't seem to have helped shareholders. They have been on a ride nearly as scary as Atari's new video-game release: RollerCoaster Tycoon 3. Since early 2005, Atari stock has fallen to 65 cents a share from above $3. Atari declined comment.
Paid well for quitting

• Executives at two companies this year nabbed multimillion-dollar severance packages for quitting -- even though each worked for about a year.
Gary Bloom signed an employment agreement with the security software company Symantec (SYMC, news, msgs) in December 2004 as Symantec announced the purchase of a company he headed called Veritas. Bloom officially joined in July 2005 when Symantec finalized the purchase. He promptly quit last March.

His brief stay at Symantec allowed him to qualify for a $1.6 million signing bonus, and he also got $3.5 million in severance pay. His total take for 15 months on the job: $5.1 million.

James Daley joined Commercial Capital Bancorp (CCBI, news, msgs) as a vice president in charge of commercial banking last July. Earlier this summer, Daley lost his job because his bank is being bought by Washington Mutual (WM, news, msgs). On his way out the door -- after about a year at Commercial Capital -- Daley collected severance pay, retirement and insurance benefits worth over $5.5 million.

"This is why we have been pushing for shareholder approval of golden parachutes if they are worth more than three times base salary," says Pedrotty. "Shareholder money is being given away."

Both Symantec and Commercial Capital declined comment.

Michael Brush is an award-winning New York-based financial writer who has covered business and investing for The New York Times, Money magazine and the Economist Group. Brush studied at Columbia Business School in the Knight-Bagehot Fellowship program. He is the author of "Lessons From the Front Line," a book offering insights on investing and the markets based on the experiences of professional money managers. At the time of publication, Brush did not own or control shares of any equities mentioned in this column.

History of American Automobile Industry
by Richard A Wright