I’m a little worried that CEO pay, particularly exorbitant bonuses, is getting out of hand. I recently read a report that Walt Disney CEO Robert Iger received $31.4 million in pay and perks in 2011. Uh, are you kidding me? $31 million! And, he drew another $21.4 million from exercising previously awarded stock options and shares that had vested. Iger wasn’t alone. Several other corporate leaders have gotten revoltingly richer recently.
Apple’s Tim Cook landed a whopping $378 million, including $376 million in restricted stock after replacing the late Steve Jobs. Starbucks’ Howard Schultz was paid more than $65 million in fiscal 2011, including salary, bonuses and stock options. Tyco’s Ed Breen reaped $68.9 million, including stock and option gains worth $52.4 million. And the list goes on.
As they say on ESPN’s NFL pre-game show, “C’mon, man!” While CEOs continue to enjoy big payouts, median household income for the rest of the population has reached its lowest level since 1996, slipping to $49,445.
Now, I get that Iger did a really good job. And Apple has been kicking, well, a lot of mobile technology butt. I’m aware how hard these executives work and the responsibility that is on their shoulders. I understand that shareholders have benefited from the increased value driven by Disney’s and Apple’s performance. Disney’s directors have cited Iger’s role in leading the entertainment giant through a “persistent difficult economic environment, during which the company posted record revenue and earnings per share.”
So, I’m not suggesting that certain CEOs don’t deserve a bonus—even big ones. But companies need to be more sensitive to disparities in income distribution. Did all of Disney’s workers get an equivalent spike in pay? Did every deserving employee that made Apple’s Cook look good get a percentage increase on par with the CEO’s? Of course not.
It’s no wonder that thousands of Americans are upset with corporate leadership. The inequity so blatantly demonstrated by outsized executive pay is part of what fueled the “Occupy Wall Street” movement. People don’t expect millions of dollars each, but they do expect a fair share that reflects their contribution to a company’s improved performance.
Boards of directors who approve these soaring pay packages for CEOs mustn’t act as if they’ve forgotten our economy—not to mention jobs growth—continues to inch along like a slug after a rainstorm. As Rutgers Prof. Bill Rodgers points out in my High-5 Q&A, the U.S. is suffering from a severe problem of structural unemployment. The pool of actively unemployed Americans is 13 million, and 43% of those have been unemployed for 27 weeks or more. That’s a major reason why personal consumption by American consumers is dropping like a brick in quicksand. Most of us don’t have much disposable income!
To make matters worse, the rich get richer even when they get fired. According to a report released by GMI Ratings, 21 CEOs received more than $100 million each in “‘walk away” packages since 2000. In all, companies like GE, Exxon Mobil Corp., AT&T and Home Depot Inc., have collectively provided nearly $4 billion in golden parachutes. More than the GDP of Saint Lucia, the U.S. Virgin Islands and Liberia—combined.
How can boards justify these payouts? Golden parachutes are designed to protect CEOs, the report explains, from financial harm when they make M&A decisions that may be in the best interest of shareholders but that might lead to their losing their jobs. “Incentivizing executives into retirement,” the report says, by having stock compensation continue to vest during retirement, is also in the best interest of shareholders because it ensures that the decisions made by the executives are in the long-term interest of the company despite the proximity of their retirement age.
This makes sense in principal. But I agree with the writers of the report when they say a CEO should not need three or even two years’ salary and bonus, plus immediate vesting of all equity … plus benefits, as was paid to most of the CEOs in the report.
The onus falls on boards of directors to get the executive comp equation right. It’s no stretch to say that the American economy, indeed our global competitiveness depends on it.