When boards of directors of Fortune 500 companies sit and consider the compensation levels of their most senior executives, do you think it matters that many of those board-member-deciders are or have been themselves overpaid senior managers at other companies? “You scratch my back” syndrome, a spin-off of that “the rich get rich, and the poor get poorer” axiom? Back in the 1950s, a long time ago, CEO generally made no more than about 50 times their company’s median income. By the 1990s, the multiple reached 250 to 300 times. Recently, according to Standard & Poor’s 500, it’s edged up slightly to 324 times. But other metrics, applied to the largest companies see multiples well over north of 600 times.
There’s little question that most senior executive pay at mega-publicly traded American companies is clearly out of control. It has been for a while. The issue has been the subject of litigation and legislation, but somehow, top CEOs continue to make increasing fortunes in annual compensation, from salary and bonuses but most from equity grants. Writing for the March 1st Los Angeles Times, OpEd columnist Michael Hiltzik, dug more deeply into this American disease:
“Can anything rein in CEO pay? A prohibition on deductions for cash executive pay over $1 million, instituted in 1994, spurred the rise in performance-based equity awards because they were exempted from the cap. The Republicans’ 2017 tax cuts repealed the exemption, but companies have responded by simply increasing the cash component of pay packages.
“Shareholder votes may have begun to yield fruit. Pay packages at Activision Blizzard, Chipotle and Hilton, among other corporations, were cut after strong shareholder votes against them; but it’s unclear how much the votes had to do with the pay cuts, since some of those companies also suffered business reversals that might have triggered the cuts anyway. At Apple, Cook recently got a 40% pay cut, to $49 million; the company said he asked for the cut after shareholder approval for his pay package dropped sharply…
“[Yet the} 2010 Dodd-Frank Act gave shareholders a say on executive pay, albeit a relatively toothless one — the vote can only be advisory, not binding… Corporate boards have found ways to circumvent efforts to rein in executive pay through tax rules, shareholder voting options and moral suasion.
“Even the unique economic head winds of the COVID pandemic failed to put a leash on the rise of CEO pay — boards simply used the pandemic as an excuse to rejigger executive pay packages so they wouldn’t be penalized for business conditions said to be beyond their control… The CEO pay issue may come into sharp relief due to a pending court ruling on the lavish compensation deal that Tesla awarded CEO Elon Musk.
“Plaintiffs in a shareholder lawsuit filed in Delaware Chancery Court estimate that the package, granted by a ‘supine board,’ could be worth nearly $56 billion, making it the ‘largest compensation plan in history.’ A ruling on the lawsuit could come any day now.
“CEOs are the ultimate beneficiaries of a ‘heads I win, tails you lose’ ethos in corporate management… ‘If a company has a good year, it’s all about the management team and the CEO driving it,’ says Rosanna Landis Weaver, lead author of As You Sow’s report. ‘When they don’t do well, it’s all about ‘external factors.’ ’… Huge pay packages for CEOs are routinely justified as rewards for the performance of their companies. The truth is that there appears to be no connection.
“If anything, there’s an inverse connection. ‘The bottom fifth of companies by equity incentive award outperformed the top fifth by nearly 39% on average on a 10-year cumulative basis,’ the consulting firm MSCI found in 2017 after a survey of its clients… Directors on their boards’ compensation committees often seem to be blind to this reality. They’re often current or retired CEOs themselves, and therefore accustomed to normalizing outsized pay based on their own personal experience.
“They often persuade themselves that performance standards imposed on CEOs to trigger big pay awards will align pay with shareholder interests, but may not notice that those standards are subjective, not objective…. 2021, when the total shareholder return of CEO David Zaslav’s company (then known as Discovery) declined 22%, his compensation rocketed up 554%.... The ratio of Zaslav’s pay to that of the median Discovery employee was 2,972 to 1.”
As Congress continues to debate cutting Social Security and Medicare, you have to wonder why folks making ungodly sums of money cannot afford higher tax under a system the pays them, win or fail.
I’m Peter Dekom, and if this proves anything, it is that the current system has completely failed almost all of us.
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