This is an enlightening article from May 1997, in which Marc Bayard and Chuck Collins of the United For A Fair Economy and Sarah Anderson and John Cavanagh of the Institute For Policy Studies write the Fourth Annual Executive Compensation Survey:
Foreword
U.S. Representative Martin Olav Sabo
For the last two decades, our nation has seen the gap between incomes of the rich and the poor grow by leaps and bounds. Nothing exemplifies this income gap better than the large disparity between executive pay and worker pay.
I believe that when many Americans complain about excessive executive pay, they are not really as upset about high pay as they are about the inequity that exists within so many companies. Part of the American work ethic has been that when a company succeeds, workers should get their fair share, and should be able to advance along with the company. Accordingly, many people are repelled when the workers at the bottom of the ladder have stagnant wages while executives prosper.
If economic opportunity is not extended to all Americans, we face the possibility of becoming a nation that is, in the words of former Labor Secretary Robert Reich, “sharply divided between the very rich and very poor.” Clearly, such a development—the elimination of a strong middle class as the defining element of American society—would threaten the very fabric of our economy and society. It is therefore in our common interest for the government to address economic inequality in America.
We have made some headway in reducing inequality by expanding the Earned Income Tax Credit and increasing the minimum wage. Nevertheless, the government must do more. I have proposed using the tax code to eliminate what is essentially a subsidy for excessive executive pay. My legislation, the Income Equity Act of 1997, does this by limiting the tax deduction for executive compensation to 25 times the salary of the lowest-paid full-time worker in a firm.
My bill is only one way to address the persistent income gap in America. This report is an important contribution to this struggle. The report highlights a troubling trend that we must address: CEO compensation has risen even faster in firms that have slashed their workforces over the past year. I congratulate the Institute for Policy Studies and United for a Fair Economy on this report, and on their continuing efforts to gain economic security for American workers.
Martin Olav Sabo represents the Fifth Congressional District of Minnesota. iii
Foreword
Morton Bahr
I n 1994, I thought I had seen corporate greed in the communications and entertainment industry peak when Ray Smith of Bell Atlantic took home a million stock options. Then in 1995, AT&T’s Robert Allen received options worth as much as $84.5 million—and announced 40,000 job cuts. And now in 1996 comes Disney’s Michael Eisner, with a pay package of $8,650,000 and options worth up to $984,000,000. There seems to be no end to CEO greed.
The pay gap between workers and CEOs has become enormous. CEOs in the United States make more than 200 times what average workers make. Compare this to Europe, where CEOs make only 20 to 30 times what the average workers are paid. And, as CEOs get richer, the rest of us are falling further and further behind, despite rising productivity and corporate profits.
The fortunes of all Americans used to rise together, but the last 15 years have brought prosperity only to the richest. To take just one example, from 1983 to 1989, the richest one-half of one percent of American families increased their wealth by $1.45 trillion. If that money were invested at a conservative rate of 7 percent, it would generate $100 billion per year, enough to create 18 million $50,000 a year jobs. America created the wealth but not the jobs. Just imagine 18 million more teachers, firefighters, or police officers. Instead, real incomes for the poorest in our society have fallen and working families are struggling with mounting debt and working longer hours, often juggling multiple jobs with minimal or no benefits.
We at the Communications Workers of America and the labor movement join with the Institute for Policy Studies, United for a Fair Economy, and many other allies in calling for a new vision of corporate accountability, one that embraces the interests of all: workers, managers, stockholders, customers, and neighbors. Transforming the U.S. corporate economy from one that focuses only on profits for Wall Street and excessive pay packages for CEOs to one that promotes jobs with justice for Main Street is our challenge for the 21st century.
Morton Bahr is the President of the Communications Workers of America, AFL-CIO. iv
Foreword
Robert B. Zevin
For those of us who want to see our children grow up as good citizens and productive workers in a democratic and fair society, there is something corrosive and disheartening about the well-publicized tributes which are lavished annually upon the lords of our corporate fiefdoms.
The 30 worthy gentlemen tabulated in this study were paid an average of $4,610,200 for their efforts in 1996. But they were perhaps entitled to extra compensation for bearing the collective burden of serving as executioners of the dreams of 209,015 workers and their families—a staggering 6967 average layoffs per CEO. Not to mention spreading fear and reducing morale for millions of additional employees.
If the total compensation received by the average American CEO in 1996 alone were invested in U.S. Government bonds, the interest on that investment would pay 15 employees their average wage for the rest of their lives and still leave the whole pay package for the CEO to bequeath to his business school.
As social investors, we have brought the issue of executive compensation to executive suites and shareholder meetings. However, the problem of excessive compensation at the top is ubiquitous in the private economy. The forces of competition, conspicuous display and measuring success against others are driving executive compensation farther and farther above the earnings of the ordinary millions.
This problem can best be addressed by a steeply progressive income tax or consumption tax. Similar top-down social policies have helped other countries contain the gap between boss and employee. Among many benefits from reduced inefficiencies, higher taxes on gargantuan pay packages would protect corporations from wasting their resources on a competitive compensation race and would protect society from further demoralization and despair.
I commend United for a Fair Economy and the Institute for Policy Studies for this report and hope that its message is heard in boardrooms across the nation and in Congress.
Robert B. Zevin is Economist and Senior Vice President of United States Trust Company of Boston and a pioneer of Socially Responsible Investing for the past thirty years.
Executive Summary
In 1996, 30 firms announced U.S. layoffs of between 2,800 and 48,640 workers. Our analysis of these leading job-cutters reveals that their top executives, for the most part, were handsomely rewarded for wielding the axe.
MAJOR FINDINGS:
1. Layoff Leaders Get Massive Compensation Hike In 1996, the layoff leaders enjoyed an average increase in total direct compensation (including salary, bonus, and long-term compensation) of 67.3 percent—far above the average increase of 54 percent for executives at the top 365 U.S. firms. Most of the job-cutters’ increased earnings came in the form of gains from stock options, reflecting the continued trend on Wall Street to reward downsizers. In salary and bonuses, the layoff leaders received a 22 percent raise, which placed them far ahead of the average U.S. worker, who earned only a 3 percent raise in wages in 1996.
2. Enormous Wage Gap at Job-Cutting Firms Of the 12 top job-cutting companies for which data were available, the average gap between the top executive’s salary and bonus (not including stock options) and the wage of the lowest-paid full-time worker was 178 to 1.
3. Efforts to Control Excessive Pay are Gaining Strength A national coalition of community, labor, and business organizations is working to eliminate the massive loophole that presently allows corporations to deduct excessive salaries from their taxes. One proposed law, the Income Equity Act (H.R. 687), would prohibit corporate tax deductions on salary and bonuses that exceed 25 times the wage of a firm’s lowest-paid full-time worker. This “CEO Subsidy” costs U.S. taxpayers billions. Capping the deduction for only the top two executives at the 365 U.S. firms surveyed in Business Week would generate over $514 million in increased revenue.
Introduction
Editorializing on skyrocketing CEO pay, Business Week’s editors recently quipped: “Making 200 times the average paycheck, simply because the market has a good year, doesn’t generate respect.”1 Such excessive pay should garner even less respect when the beneficiary is a leading job-slasher. However, for the fourth year in a row, our analysis of the executives who announced the largest layoffs of the year shows that these CEOs, for the most part, continue to make out very well on pay day.
This report focuses on the 30 CEOs who announced layoffs of between 2,800 and 48,640 workers in 1996. These layoff leaders’ fat pay packages, detailed in Table 1 in the appendix, underscore the perverse incentives and devastating inequalities that permeate the U.S. economy. Last year saw a staggering 54-percent rise in total compensation for the top two executives at 365 leading U.S. firms (to an average of $5.8 million)2 and a hefty 11-percent hike in corporate profits.3 At the same time, U.S. companies continued to shed workers and the average U.S. wage barely kept pace with inflation.
Will it ever end? Section Three of this report documents a broad range of efforts—by legislators, investor activists, and even some businesses—that are aimed at putting the brakes on runaway pay. These efforts are a sign that American society is getting fed up with excessive compensation—particularly for executives who are throwing thousands of workers out on the street.
See http://www.ips-dc.org/wp-content/uploads/1997/05/Executive_Excess_1997.pdf for the main body of the report.
