Topic: Society

The Business Roundtable
(July 2006)

Responding to increasingly clamorous accusations that the nation's CEO's are essentially looting their companies by accepting kingly compensation while company performance and worker salaries languish, the Business Roundtable, the elite business lobbying group made up of 160 chief executives of top U.S. companies, released the results of an eleven year analysis of executive pay.

Its surprising conclusion? Top CEO's are not overpaid! They do not draw unreasonably high salaries that are out of proportion to their company's performance and resources. They do not achieve artificially excessive rewards because they control the boards that hire them, which are primarily made up of other CEO's who have an interest in keeping the going rate for their own services in the stratosphere.

Why, according to the meticulous study, CEO salaries have only risen 9.6 per cent annually from 1995 to 2005, less than the annual 9.9 percent returns received over the same period by the stockholders of the 350 companies studied! That's more than reasonable. So, concludes the Business Roundtable, it is time to stop bashing "executive greed." "We wanted to try and promulgate a consistent set of facts because a lot of what we have seen in the media on executive pay we felt was misleading," said the Roundtable's director of public policy.

Absolutely. Facts are facts. Except when they are assembled to deceive, which appears to be what the Roundtable study did. For example, the figures used to represent the executives' "total pay" omitted such items as dividends paid by the company to the executives for restricted stock holdings, although it did count dividends in assessing what shareholders made. See the trick? The study used stock dividends only to increase the amount of stockholder returns, which were favorably compared to CEO compensation figures that were calculated while omitting the same component.

This is approximately the same as my doctor stating that his measurements show that I am actually taller than Shaquille O'Neill, without noting that Shaq was on his knees when he measured us.

There is more. The Roundtable study also saw fit to leave out the profits made by CEO's when they cashed in their stock options, including only the value of the stock when it was acquired. But there is no question that the executives in the study realized magnificent gains from the options, and it is definitely part of their compensation. So are pension benefits, deferred compensation and pre-agreed severance packages, also conveniently left out of the Roundtable's self-serving calculations.

But here's the real shocker: even using the Roundtable's cooked figures, CEO pay still looks out of whack with what the marketplace would dictate if it functioned properly. A "9.6% increase in CEO pay annually" is about 151%. Median sales at the companies run by those CEO's rose only 51%, while the median pay increases for full-time U.S. workers rose only 32% during the same period. [Note: These figures are from columnist Robert J. Samuelson, who is one of the few commentators as comfortable with a balance sheet as he is with a word processor.]

Too often, executive compensation is unconnected to performance, competent management, fairness or logic. The system has broken down over the past two decades, with CEO pay now so dwarfing the salaries of regular workers that even ardent advocates of capitalism admit that greed, ego, toxic incentives and conflicts of interest overwhelm market forces. Solving the problem isn't easy, but it is made infinitely harder when those who know better, like the executives themselves, go to absurd lengths to pretend the problem doesn't exist. That's what the Business Roundtable's study did. From the indignant response of Samuelson and others who are not so easily fooled, it appears that even the study's deceit, omissions and misrepresentations could not make a strong case for annual CEO pay packages of 100, 200, 300 million and more in defiance of sales levels, stock performance, other measurements company success or equitable pay scales.

But what could?

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