A few days after print publication, Knight's syndicated newspaper column, which moves twice a week, will be posted. The most recent will appear at the top.

Thursday, September 19, 2013

What does CEO pay actually buy?

Bill Knight column for Mon., Tues. or Wed., Sept. 16, 17 or 18

Most people know that most corporate CEOs are paid a lot -- the ratio of CEO pay to average-worker pay is 273 to 1, compared to 20 to 1 in 1965, reported the Washington Post. But what does all that money buy?

Incompetence, maybe.

About 40 percent of corporate America’s highest-paid executives over the last 20 years performed poorly, according to a new report from the Institute for Policy Studies, which conducted a thorough “performance review” of CEOs who ranked among America’s 25 highest-paid CEOs in the past two decades. They found many to have been “bailed out, booted or busted.”

“The Bailed Out” are those who led firms that folded or got taxpayer bailouts after the 2008 financial crash – 22 percent of the nation's highest-paid CEOs. Richard Fuld enjoyed one of corporate America’s largest 25 paychecks for eight consecutive years at Lehman Brothers' helm, for example – until he led his firm down the chute in 2008.

“The Booted” are another 8 percent of the best-rewarded CEOS, those who were fired – not counting those on the bailed-out list. Despite lousy performances, such fired CEOs left with golden parachutes valued at $48 million on average.

“The Busted” are yet another 8 percent of America's highest-paid chief executives, leading companies that had to shell out payments that averaged more than $100 million for fraud-related fines or settlements.

The Institute for Policy Studies (IPS) issues Executive Excess reports annually, and this one examines the "performance" of the 241 corporate bosses who ranked among America’s 25 highest-paid CEOs in the past two decades. “Executive Excess 2013: Bailed Out, Booted and Busted, a 20-Year Review of America’s Top-Paid CEOs,” was cited by the Wall Street Journal.

“All this compensation, corporate spokespeople have continually reminded us, reflects the exceptional ‘value’ these amply rewarded executives have added to their enterprises,” write the authors, Sarah Anderson, Scott Klinger and Sam Pizzigati. “In reality, America’s most highly paid executives over the past two decades have added remarkably little ‘value’ to anything except their own personal portfolios.”

The study limited its assessment of poor performances to corporate bankruptcies, firings and fraud, where specific metrics can easily be tallied.

“Our analysis reveals widespread poor performance within America’s elite CEO circles,” the report says. “Chief executives performing poorly – blatantly so – have consistently populated the ranks of our nation’s top-paid CEOs.”

The Top 5 bailed-out corporations with CEOs appearing on the top 25 highest-paid lists since 1993 are: AIG (which received $69.8 billion in bailouts), Citigroup ($50 billion), Bank of America ($45 billion), JPMorgan Chase ($25 billion), and Wells Fargo (also $25 billion).

The Top 5 executives forced out of their jobs (and their “golden parachute” separation pay) are Compaq Computer’s Eckhard Pfeiffer (who left with $416 million), Pfizer’s Henry McKinnell ($198 million), Merrill Lynch’s E. Stanley O’Neal ($161 million), KB Home’s Bruce Karatz ($114 million) and Enron’s Kenneth Lay ($60 million).

The Top 5 highly paid executives tied to fraud charges at companies that paid substantial sums in fraud-related fines and settlements (not including those listed in the “Bailed Out” or “Booted” sections who led companies also associated with fraud) are Oracle’s Lawrence Ellison, McKesson’s John Hammergren, Bristol-Myers Squibb’s Charles Heimbold Jr., and (tied) America Online’s Stephen Case, Schering-Plough’s Richard Jay Kogan and CIGNA’s Wilson Taylor.

Even if a corporation is not receiving government funds directly, taxpayers subsidize highly paid CEOs through a loophole in the federal tax code. Under current rules, corporations can deduct unlimited amounts off their taxes for the expense of executive stock options and other so-called performance-based pay. So the more corporations pay CEOs, the less they pay in taxes.

“This loophole creates a perverse incentive to compensate executives excessively because ordinary taxpayers wind up paying the bill,” IPS’ researchers note.

IPS has ideas for reform that they describe as “creative and practical proposals”:

* Limiting the deductibility of executive compensation: At a time when Congress is debating sharp cuts to essential public services, corporations are able to avoid paying their fair share of taxes by deducting unlimited amounts from their IRS bill for the cost of executive compensation.

*CEO-worker pay ratio disclosure: Three years after President Obama signed the Dodd-Frank legislation, the Securities and Exchange Commission still hasn’t implemented this common-sense transparency measure.

*Pay restrictions on big banks, which are already regulated (if barely these days): Within nine months of the enactment of the 2010 Dodd-Frank law, regulators were supposed to have issued guidelines that prohibit large financial institutions from granting incentive-based compensation that “encourages inappropriate risks.” Regulators are still dragging their feet on this modest reform.

Talk about incompetence.

The report is online –

[PICTURED: Khalil Bendib cartoon from Executive Excess 2013]

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