Has corporate America learned anything from Americans' outrage over CEO compensation excesses, fueled by the likes of erstwhile Tyco (NYSE:TYC) CEO Dennis Kozlowski? Not too much, it seems.
BusinessWeek has once more surveyed executives of major corporations, and the folks at United for a Fair Economy (www.ufenet.org) have used its data to calculate that the average CEO collected $155,769 per week, compared with the $517 earned weekly by the average production worker. This means CEOs took in $301 for every dollar earned by rank-and-file employees.
Are such executives really 301 times more valuable than average workers? It's hard to imagine that's the case with so many major corporations not exactly performing in stellar fashion. Sure, some CEOs, such as BerkshireHathaway's (NYSE:BRK.A) (NYSE:BRK.B) Warren Buffett and eBay's (NASDAQ:EBAY) Meg Whitman, take home relatively little in relation to the return their firms deliver to shareholders. But then, as BusinessWeek pointed out, you have Larry Ellison of Oracle (NASDAQ:ORCL), who took in some $750 million in total pay in the three years from 2000 to 2003, while his shareholders lost 54%. And then there's Scott McNealy of Sun Microsystems (NASDAQ:SUNW), who took in $35 million in the same period while his shareholder return was -84%.
Has the picture been improving any over time? Well, yes and no. The high-water mark for this survey came in 2001, when CEOs raked in 531 times what average workers did. That dropped precipitously in 2002, to 282, but has clearly inched up a bit since then. (The wide spread is largely due to the swooning stock market, which took with it the value of many bigwigs' stock options.) In 2003, the average surveyed CEO earned $8.1 million in total pay, up 9% from 2002. Meanwhile, the average production worker's salary increased just 2%. Step back further and the situation is grimmer. In 1982, CEOs took in just 42 times what average workers did.
Believe it or not, average Americans are not the only ones concerned about this. Back in 2002, The Conference Board issued recommendations on improving corporate compensation and governance, featuring some thoughts from Warren Buffett himself. Buffett pointed out that compensation committees often act like lap dogs, rubber-stamping CEO requests for pay increases, as CEOs strive to keep up with each other.
What's needed? A little more backbone in the boardroom, for starters. If you're paying a CEO $5 million per year and he wants $6 million, can you really not find someone else who's talented and would be happy to do the job for $5 million, or perhaps even $2 million? Let's see a little competition for these plum posts.
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Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway, eBay, and Sun Microsystems.
