|US: Shareholders Must Push To Stop Ridiculous Pay|
February 20th, 2005
Think the post-Enron era has brought at least a small degree of
restraint and accountability when it comes to CEO compensation? Think
The numbers for 2004 are trickling in, and if the trend continues, last year will go down as a record year for exec pay.
Take Wall Street, for instance. Since most brokerage firms operate on a
fiscal year that ends in November, the eye-popping numbers paid out in
'04 to Street fat cats are already out. And what they show is a
pay-for-performance formula way out of whack with reality.
Consider this: Wall Street's top four CEO's (the alpha dogs at Merrill
Lynch, Goldman Sachs, Lehman Brothers and Morgan Stanley) took home
more than $110 million in 2004 — a gain of 33 percent — in a year where
the Dow was up only 3 percent, and their own firms' stock prices
averaged a return of little more than 4 percent.
With the economy and stock market both back on their feet last year,
compensation experts expect more of the same when the rest of corporate
America puts out its pay numbers over the next few weeks.
The average CEO is now paid more than 56 times that of an Army General
with 20 years experience, according to faireconomy.org, and more than
600 times that of a starting soldier.
What's more, a study shows that the CEOs of companies that are the
biggest outsourcers of U.S. jobs, bring home the biggest paychecks:
$10.4 million in 2003, 28 percent more than the average. And the
bloated gravy train seems to be ramping up in 2005.
With merger mania in overdrive, executives are feasting on huge buy-out packages for the first time in years.
Gillette's chief, James Kilts, will walk away with an exit package
valued between $153 million and $185 million, including a $12.6 million
"change-in-control" payment for his four years on the job — after
selling the company to P&G.
If the merger doesn't work out? No problem!
Carly Fiorina leaves Hewlett Packard with a $21 million golden goodbye,
(the whole package could be worth as much as $42 million, including
pension rewards, etc.) even after she received a bonus for the terrible
idea of putting HP and Compaq together in the first place.
Yes, if you're an American CEO in 2005, it's heads, you win, tails you win.
So, what's a shareholder to do? Vote!
As a study by the AFL-CIO shows, mutual fund families are not always
voting in your interests. Of the top-10 mutual fund families (in terms
of assets under management) the study showed that only the American
Century funds voted in favor of shareholder proposals to reign in pay
100 percent of the time.
Vanguard came in second with a 75 percent showing. Remarkably, Fidelity
only voted for the shareholder resolutions 25 percent of the time, and
Putnam came in dead last, supporting only 1 in 5 votes to curb CEO pay.
We don't yet know how mutual funds have voted this year. But with funds
representing 22 percent of all U.S. stocks owned, even a small change
in favor of shareholders could sway the outcome.
This week for example, shareholders narrowly rejected a vote to restrain pay packages at Lucent by a margin of 52-48.
The fact that shareholders voted down the pay proposal, while at the
same time approving a plan that would allow Lucent to execute a reverse
stock split if its shares fell below $1 (at which point it would be
kicked off the NYSE) shows why CEOs still think they have the keys to
the candy store.
But shareholders can fight back. You or your mutual fund surely owns
stock in at least one of these companies. So do you homework, call your
fund and tell them how you want them to vote.
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