CEOs: Do the Right Thing!

According to a survey from the AFL-CIO, many CEOs’ pay actually rose in 2008. Um, last I heard, 2008 was a pretty bad year for many companies (and their shareholders). And, um, it was a pretty bad year for many workers, too, who were laid off or subjected to pay cuts.

But hey, I guess it was a good year for some folks, eh? There’s something seriously wrong with this picture.

Bad year? Good for some CEOs
This survey, which used data from The Corporate Library, runs contrary to other recent surveys that showed CEO pay decreased last year. And the truth is, it stands to reason such results might be inconsistent depending on the companies included, but let’s not be naive; it's not surprising that some CEOs made out like bandits.

According to the AFL-CIO’s survey, median CEO salary rose by 7% in 2008. In addition, CEO perks rose by nearly 13% to an average value of $336,246. Those are some serious “perks,” indeed.

The survey, which included data from The Corporate Library, a independent corporate-governance research firm, included 946 companies from the Russell 3000 index, and showed that 480 individuals got pay raises and 463 experienced pay cuts.

A Reuters article on the survey called out Citigroup’s (NYSE: C  ) Vikram Pandit, who received $38 million in 2008, a figure that includes stock options that haven’t vested yet. And of course, Citigroup is certainly in the hot seat on the idea of lucrative CEO pay, since it has received $45 billion in government aid to keep its zombie butt stumbling along.

None of us are strangers to outrage over CEO pay these days; AIG’s (NYSE: AIG  ) compensation controversy underlined the logic disconnect of bonuses for a job not very well done.

And of course, when taxpayer money’s on the line, it’s very difficult to justify big payouts, particularly for poor performance (not to mention being a continual money-suck). Meanwhile, the government removed General Motors (NYSE: GM  ) CEO Rick Wagoner, who received a pay increase last year despite the fact that that company hasn’t reported a profit for several years and has been clamoring at the government till.

Pay in a vacuum
Even beyond companies that have recently become government welfare cases, though, there has been an ongoing and serious logic disconnect when it comes to the lucrative pay corporate America seems to expect for the “superstar” CEO position.

Here’s just one example, and granted, there are many. ExxonMobil’s (NYSE: XOM  ) Rex Tillerson’s pay, including bonus, rose 34% last year, despite the fact that the company’s shares fell 15% in that same period, the worst performance of that stock in 27 years.

I’m sure the argument I’ll hear is that macroeconomic problems caused the stock to drop with the broader market and it wasn’t Tillerson’s fault (and granted, ExxonMobil’s profit did increase to $45.2 billion). However, since CEOs work for shareholders, one might think a little prudence on pay could have been in order. (Note that there are shareholder proposals regarding executive compensation and “say on pay” in Exxon’s most recent proxy statement, including the lovely factoid that while most CEO’s pay is 344 times that of the average worker, Tillerson’s pay in 2007 was 541 times that of the average worker.)

Meanwhile, people who defend outrageous pay for garbage performance might want to, um, just freakin’ grow up. Lots of people these days are taking a financial hit for outcomes that aren’t technically their fault. For example, when companies resort to mass layoffs due to the poor economic climate, it certainly isn’t the workers’ “fault.”

And I have to wonder how many companies could have saved some money -- and some valuable employees -- if CEOs and boards had been willing to have a more reasonable approach to high-level compensation in hard times, where everybody makes some sacrifices to keep things running smoothly. Come on, people, there’s no “I” in team.

A reality check is sorely needed
Thankfully, there are beacons of reason and true entrepreneurial spirit out there. Costco’s (Nasdaq: COST  ) Jim Sinegal is one of my favorite examples of a CEO who does a spectacular job and accepts modest pay. Berkshire Hathaway’s (NYSE: BRK-A  ) Warren Buffett also takes a modest salary and has often spoken out on executive compensation excess.

Furthermore, I recently outlined a few companies that did the right thing and pared down CEO salaries, a few of whom did so simply because of the nasty economic environment and not because of specific performance at all. Hmm, that sounds like a concept called “prudence.”

Sometimes, making sacrifices is just the right thing to do when times are tough. (In fact, I recently called out Starbucks (Nasdaq: SBUX  ) for what seemed like a merely symbolic gesture in the executive pay arena, and I’m a shareholder.)

The fact that government’s had to intervene in some cases on compensation, and some people want it to intervene more, is utterly pathetic, too; shareholders need to keep agitating, and boards of directors should have put a stop to the excesses and logic disconnects in CEO pay a long time ago and had better wake up and start hitting it now.

Is it really that hard to have a sense of ethics, inspired more by business excellence than their own pocketbooks? It’s time for more individuals at the highest levels of corporations to do some serious soul-searching and remember to do the right thing -- or at the very least, the logical thing, when performance isn’t there and other stakeholders are taking a beating.

Not outraged yet? Read on:

Berkshire Hathaway and Starbucks have been recommended by both Motley Fool Inside Value and Motley Fool Stock Advisor. The Fool also owns shares of Berkshire Hathaway and Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


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  • Report this Comment On April 15, 2009, at 3:50 PM, outoffocus wrote:

    Hey Alyce.

    Do you really thing the CEOs are going to do the right thing on their own? Of course they wont. Boards of directors will not lower executive compensation until someone holds them accountable. Typically that would have been the shareholder, but since most shareholders either hold too little of the stock to be able to make a difference in voting, or the stock is owned by a mutual fund or etf that doesnt have the shareholder's best interest at heart, no one really holds the executives accountable for setting a fair executive wage. The only people have power over such actions are the executives and their cronies.

    Its alot like our Congress. If you have the power to "vote in" your own pay increase, are you ever going to vote in a pay cut? Of course not. Why, because you think you are entitled to it. It speaks volumes about the culture of this country.

  • Report this Comment On April 15, 2009, at 4:00 PM, mrwizard555 wrote:

    show up every day and have your stock tank 30 to 50 percent and get a raise. i can do that. i will only want a half a million per year to do it too.

    not being a complete idiot, i know that i can run any company in the world for that amount, and probably far less. put me in the place of lewis or pandit and i would have cleaned up either bank in 90 days. "either get rid of the crap or tell me what it is REALLY worth". one big write down with nowhere to go but up.

    the constant drain of a few billion here and there is what is killing these guys.

  • Report this Comment On April 16, 2009, at 10:00 AM, catoismymotor wrote:

    I have worked half of my adult life as a commissioned sales person. As a result I believe in performance based pay. You do a good job, you make good money. If you take no hostages and finish in the top ten of your piers you get an extra amount of cash top of what you made on your own. That is a true bonus. A bonus is not part of a negotiated annual pay package.

    As for corporate bosses I STRONGLY believe in a healthy base salary (nothing more than $500k) plus a certain number of company shares to be issued to them quarterly. Those shares must be sold to immediately upon issuance to fund the rest of his pay. If the company is doing well the share price should increase, therefore his take home pay would to. If the company is being driven into the ground the share price would reflect this and his take home pay would decrease. This would encourage performance out of the higher-ups. And what of bonuses for corporate bosses? They should be given out every three years and only if the company has grown at a rate that out paces inflation.

  • Report this Comment On April 17, 2009, at 1:30 PM, TMFLomax wrote:

    Hey outoffocus -- you make a lot of excellent points and yes, I do think there's a problem in our culture, a sense of entitlement about these sorts of things. (And yes, major shareholders are well positioned to understand and agitate for changes in this regard and have fallen woefully short -- have really been more about short-term results than anything else and that has been a major problem.) But, maybe change can come about by pointing out these discrepancies and a little "public shaming," because seriously, so much of this stuff has really become out of whack. As long as everybody keeps silent, it keeps going on and on... Hopefully some rationality can return, some sense of accountability and responsibility.

    mrwizard55 and catoismymotor -- thanks for those comments too -- agreed!!!

  • Report this Comment On May 25, 2009, at 10:12 AM, cntroxlens wrote:

    Mike Z of Nortel deserves a mention here.

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