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I have a friend living in Harlem who works at a clothing shop in midtown Manhattan several days a week to help pay her way through college. When she hustles on the job, has a little luck and "makes her numbers" for the month, she'll get an extra $100 bonus on top of the $850 she earns in the $8.50-an-hour job. If not, she has trouble paying her bills.
Now let's contrast her situation with that of another New Yorker, Richard Parsons, who works just a few blocks away as chief executive and chairman of Time Warner (TWX, news, msgs). Granted, his job is much more complex than working at a clothing shop. But no matter how you slice it, one of the main tasks Time Warner shareholders pay him for is to "make his numbers" -- so that the stock goes up and they are rewarded.
At this job, Parsons has failed badly. He has been CEO since May 16, 2002, during which time the stock has advanced 16%, compared with a 44% gain for the S&P 500 index ($INX). Time Warner stock also lost 31% in the five years ending in December, 2006.
And yet, despite having "missed his numbers" big time -- at least from a shareholder perspective -- Parsons has collected a juicy cash bonus of $7.5 million to $8.5 million in each of the past four years. Minus taxes, the $32 million in bonus for 2003-2006 that Time Warner's board has lavished on Parsons -- even though he let shareholders down -- would cover four years worth of state-school tuition for about a thousand students.
Throw in other compensation, and Parsons has collected a whopping $53 million in the five years ending May 31, even though shareholders only saw gains of 17%, compared with S&P 500 gains of 43%.
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Is there any way to look at the stark contrasts in details of how these two New Yorkers are rewarded for doing their jobs and believe structure of pay in this country is fair anymore? I don't think so. But this is more than just the story of two people in Manhattan.
Raising the maximum wage
While average pay for CEOs at 350 of the biggest companies examined by Mercer Human Resource Consulting jumped 8.9% last year to $6.5 million, the federal minimum wage hasn't budged in 10 years. It's still at $5.15 an hour -- although under new legislation, it is set to begin rising on July 24 in the first of three scheduled hikes. Anyone working for minimum wage at the $5.15 rate has earned $10,300 a year, assuming two weeks of vacation. Last year, on average, CEOs at big companies earned 110 times the 2005 average household income, which was $58,700, according to the Bureau of Labor Statistics.- Video: CEO pay and performance
Even more troubling, this is the story of corporate boards out of control, unable to limit CEO pay or link pay to performance. Despite a public outcry against excessive CEO pay, compensation packages keep ballooning, even for the top brass who are failing shareholders on their jobs. We get a fresh glimpse of the extreme cases of excessive pay for failure in the corner office this spring now that the proxies are in and they've been analyzed by pay experts like Paul Hodgson at the Corporate Library.
Here's a list of Hodgson's most-overpaid CEOs:
| Company | CEOs | 2005 | 2006 |
|---|---|---|---|
Kevin Rollins, Michael Dell* | $39,314,839 | $153,223,079 | |
Sidney Taurel | $16,643,068 | $10,799,582 | |
William Ford Jr., Alan Mulally** | $7,905,158 | $19,501,100 | |
Richard Parsons | $12,668,761 | $13,095,627 | |
H. Lee Scott | $10,610,858 | $8,956,062 | |
*2006 = Michael Dell's pay; 2005 = Kevin Rollins' pay. **2006 = Alan Mulally's pay; 2005 = William Ford's pay. Pay = base salary, bonus, other pay, gains from exercising options, value of incentive stock that vested and increases in the value of pension plan. Source: The Corporate Library |
Picking shareholder pockets
Easily the biggest CEO payouts have come from Dell (DELL, news, msgs), according to the numbers in a recent report by Hodgson, called Pay for Failure II, that came out last month. Michael Dell, who has been chairman of the troubled computer maker for the past several years and CEO for much of that time, as he is now, booked an astonishing $153 million gain in the company's 2006 fiscal year by exercising options. That's enough to buy each of the nation's incoming freshmen a laptop for the next 38 years, at current prices. It's also roughly equivalent to the annual gross domestic product of the Marshall Islands. (Dell hasn't actually sold the stock yet, so he's still got just paper gains on those options.)The prior year, Dell reported that former CEO Kevin Rollins netted $39 million chiefly by exercising and cashing out a huge number of options in 2004. All told, the two got at least $281 million in the past five years while at the helm of the company, according to Hodgson's report. Dell's stock has slipped 1.7% in that time, compared with 43% gains for the S&P 500 (in the five years ending May 31). Hodgson's total excludes options gains realized by Rollins when he was president and chief operating officer, like the $36 million he got in the 12 months leading up to July 2004, when he became CEO.
"That's a big five-year total for Dell while performance has only gotten worse," says Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees. "Dell is now losing the competition to Hewlett-Packard (HPQ, news, msgs) when the expectation was that they would be cleaning Hewlett-Packard's clock. So the question is whether (Michael) Dell is picking the pockets of his shareholders when he continues to get paid and the shareholders don't."
Continued: Friends in the boardroom
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