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How Wide Grows CEO Earnings Gap
Published on Monday, April 17, 2000 in the Baltimore Sun
How Wide Grows CEO Earnings Gap
by Holly Sklar
 
IT'S GETTING harder to tell CEO paychecks from lottery payouts. Except that CEOs expect to win big even when the company loses.

When Coca-Cola CEO Douglas Ivester announced his retirement, Bloomberg compensation analyst Graef Crystal observed, "Here is a man who is resigning after a two-year tenure as CEO that produced a return for shareholders of a negative 7.3 percent. For that, he is walking away with stock, options and other goodies worth at least $120 million." Meanwhile, as the AFL-CIO Executive PayWatch reports, Coca-Cola is laying off thousands of workers and facing a lawsuit alleging the company discriminated against black employees in promotions, pay and performance evaluations.

Many CEOs make more in a year than their employees will make in a lifetime. Last year, the average CEO of a major corporation earned $12.4 million, including salary, bonus and other compensation such as exercised stock options, according to Business Week's latest survey of executive pay. That's $34,000 a day including Saturdays and Sundays.

While average workers are still digging their way out after years of falling real wages, CEOs are soaring to heights once reserved for a handful of robber barons.

In 1980, CEOs made 42 times the pay of average factory workers. In 1990, they made 85 times as much. By 1999, CEOs made 475 times as much as workers. How big a gap will we tolerate?

The top CEOs earned as much as small countries last year. Computer Associates CEO Charles Wang led the gravy train with $655 million. Next were Tyco International CEO L. Dennis Kozlowski with $170 million, Charles Schwab CEO David Pottruck with $128 million, Cisco CEO John Chambers with $122 million and America Online CEO Steve Case with $117 million.

Many CEOs have amassed future fortunes in stock options not yet exercised. Yahoo CEO Timothy Koogle leads with $2.3 billion in unexercised stock options, followed by American Online's Steve Case with $1.3 billion and Barry Diller of USA Networks with $1 billion.

CEOs aren't shy about claiming all the credit for company success to justify taking a big chunk of the rewards. Mr. Kozlowski, Tyco CEO, told Business Week, "While I gained $139 million [in stock options], I created about $37 billion in wealth for our shareholders." Thousands of Tyco employees in 80 countries didn't have anything to do with creating that wealth apparently. Mr. Kozlowski himself designs and services Tyco's fire safety and electronic security systems and must be very busy building the company's global undersea fiber optic communications network.

If CEOs are paid in the millions and billions, what should we pay our leading inventors, scientists and teachers? How much should we pay the researchers finding cures for cancer?

What kind of society has a minimum wage of $5.15 an hour - $10,712 a year - at the bottom of the pay scale and a de facto minimum wage in the millions at the top?

Average Americans subsidize outrageous CEO compensation through company deductions from taxes. Rep. Martin Sabo, a Democrat from Minnesota, wants to change that by limiting the tax deduction for CEO pay to 25 times that of the company's lowest full-time salary.

Federal Reserve Chairman Alan Greenspan should address the "wealth effect" of soaring CEO stock fortunes. Instead, he's raising interest rates, hurting low- and middle-income workers who are finally benefiting from the booming economy.

Why should low-income Americans with no net wealth pay for wealth inflation at the top?

Holly Sklar is co-author of "Shifting Fortunes: The Perils of the Growing American Wealth Gap."

Copyright 2000 Baltimore Sun

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