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CEOs are Rewarding Themselves Despite Economic Downturn
Published on Monday, September 3, 2001 in St Paul Pioneer Press
CEOs are Rewarding Themselves Despite Economic Downturn
by Sara Anderson and Chris Hartman
 
As Labor Day is observed once again, workers are getting pink slips while executives are enjoying bonuses. Job cuts have hit a 10-year high, and CEOs are rewarding themselves for causing such hardship.

Of 52 U.S. companies that laid off more than 1,000 workers this year, the chief executive officers at these firms earned an average of $23.7 million in total compensation, according to a recent analysis of executive compensation by the Institute for Policy Studies and United for a Fair Economy. That's 80 percent more than the average CEO pay in Business Week magazine's survey of executive compensation.

Take WorldCom CEO Bernard Ebbers. In early 2001, he announced plans to cut 6,000 workers. Meanwhile, he managed to get the WorldCom board to grant him a $10 million bonus in return for his promise to stay with the company for at least two more years. He also persuaded the telecommunications giant to give him a $61.5 million loan and guarantee $100 million more in additional loans.

Why was he in need of financial aid? Ebbers apparently used a similar high-risk approach in his personal finances as he did in running the company, according to the New York Times. As the company was borrowing money to finance acquisitions, Ebbers took out his own margin loans to buy company stock. Once the stock began to fall, Ebbers -- unlike many Americans -- was lucky enough to be at the helm of a company that cushioned him from his own reckless investment decisions.

During the 1990s boom, most investors didn't bat an eye over exorbitant CEO pay levels. Few seemed to care how much these guys earned, as long as the stock market continued to climb. Since the bulk of CEO compensation came in the form of gains from stock options, many people figured that these executives would rake it in only as long as everyone else was doing so.

However, as signs of the economic slowdown emerged, many CEOs managed to insulate themselves. The 52 layoff leaders, for example, received 20 percent raises in salaries and bonuses last year. Meanwhile, average wage workers received a pay increase of only 3 percent in 2000, and salaried employees got about 4 percent.

Economic inequality in our country is rapidly accelerating. Executive pay jumped 571 percent between 1990 and 2000, dwarfing the growth in worker pay, which, at 37 percent, barely outpaced inflation.

Here's one way to put the increase in CEO pay in perspective: If the minimum wage, which stood at $3.80 an hour in 1990, had grown at the same rate as CEO pay, it would now be $25.50 an hour, rather than the current $5.15 an hour. If the average annual pay for production workers had grown at the same rate since 1990 as it has for CEOs, these workers would have earned $120,491 instead of $24,668 in 2000.

The growing gap between CEO and worker pay would be less worrisome if workers at the bottom of these firms made enough to make ends meet. But a new study by the Economic Policy Institute shows that 29 percent of working families do not earn a living wage. Of these families, more than 70 percent experience real hardships, having to skip meals or rent payments and forgo needed medical care.

With concerted effort, we could bridge the inequality gap.

One way is to legislate a "living wage," which is significantly higher than the federal minimum wage of $5.15 an hour. Dozens of cities and counties across the country have already enacted such ordinances.

Another way is to cap executive pay. Rep. Martin Sabo, D-Minn., has proposed the Income Equity Act, which would limit the tax-deductibility of CEO pay to a level 25 times that of the lowest-paid worker in the firm.

Labor Day is a reminder that all of us -- not just the CEOs of our largest corporations -- contribute to the economy. And let's honor that contribution by helping those who are left behind, and by curbing the vast inequalities that so offend our basic American value of fairness.

Anderson is a fellow of the Institute for Policy Studies in Washington, and Hartman is research director at United for a Fair Economy in Boston. They can be reached by writing to Progressive Media Project, 409 East Main St., Madison, Wis. 53703. Distributed by Knight Ridder/Tribune Information Services. .

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