April 21, 2001
Salaries Are Still Flying High
CEOs in U.S. Make 475 Times What the Average Worker Makes
NEW YORK (Zenit.org) - When
chief executive officers of U.S. companies earn, on average, 475 times what the
average worker earns, that prompts an inevitable question about basic fairness.
The 1990s were a time when companies paid their CEOs record rewards. Stock
options, combined with a boom on Wall Street, meant that chief executive
officers and others saw their wealth soar.
But now, share prices and company sales have fallen, dramatically in some cases.
Recent reports recently on CEO salaries for 2000 show signs of moderation,
though not all companies have changed tack.
A Business Week report on executive pay showed that American CEOs enjoyed an
average salary last year of $13.1 million. The magazine in its April 16 edition
quoted examples of executives whose pay was slashed due to poor results. Such
was the case of Joseph M. Magliochetti, CEO of auto-parts maker Dana
Corporation. He lost his bonus and stock grant after sales fell 6% and profits
At the top end of the scale, however, CEOs were not much affected by the
slowdown. The 20 highest-paid earned an average $117.6 million, up from $112.9
million in 1999. The biggest pay package, $293 million, went to John S. Reed,
the former co-CEO of Citigroup.
At many companies, oddly, there was little linkage between results and pay. At
Walt Disney Company, CEO Michael Eisner was rewarded with a salary increase,
stock options on 2 million shares in Disney Internet Group valued at $37.7
million, and an $11.5 million bonus, after three years in which income fell by
more than half, from $1.9 billion in 1997 to $920 million.
In all, cash compensation for the CEOs at 365 of the largest U.S. companies
increased 18% in 2000, while total pay packages increased 6.3%. Business Week
observed that this increase is far more than the 4.3% pay hike salaried workers
received last year.
Some companies have linked rewards with future performance. At Coca-Cola, CEO
Douglas N. Daft was granted $87.2 million in restricted shares. He will get the
full amount only if he manages to increase earnings per share by 20% a year for
A survey of about 50 companies done by the consulting firm Pearl Meyer &
Partners found that the average compensation for chief executives reached $10.9
million in 2000, a 16% increase over the previous year, and more than double the
$4.4 million average in 1995, the New York Times reported Feb. 14.
In 1995, about half the compensation was in cash. In 2000, about 60% -- $6.5
million on average -- was in stock options, a 28% increase from 1999.
Companies were found to be moving away from performance-based plans. In fact,
the only portion of executive pay to decline was long-term incentives. Those
incentives decreased 16% from 1999 and now represent about 12% of total
At the same time, companies are looking for ways to maintain incentives for
executives in the face of declining share prices, the Financial Times reported
March 16. The paper noted that even though Coca-Cola had conditioned its CEO's
options on performance targets, his salary tripled to $1.27 million and he
received a $3 million bonus -- despite leading the company through a year of
layoffs and underperformance.
Bad results have not affected CEO pay at toy maker Mattel, either. Just days
after announcing plans to close its last U.S. factory and move 980 jobs to
Mexico, Mattel said it paid its top executive more than $12.5 million in cash
and other compensation last year, the Associated Press reported April 10.
Additionally, Mattel loaned chief executive Robert Eckert $5.5 million, all of
which, plus interest, will be forgiven if he stays at the company until May 18,
The trend to pay CEOs such enormous sums is chiefly a U.S. phenomenon. But
pressure is growing in other countries to follow suit. DaimlerChrysler CEO Jürgen
Schrempp's pay package, officially a company secret, was calculated by a
shareholders group in Germany to be about $2.9 million in 1999, the New York
Times reported April 1.
Daniela Bergdolt, a lawyer and shareholder activist in Munich, said CEOs' pay in
Europe is growing, with bonuses and stock options, and often this data is not
In Britain, companies must disclose more information. So it's public knowledge
that Fred Goodwin, chief executive of the Royal Bank of Scotland, received $3
million last year, 250% more than in 1999. That included a bonus of about $1.2
million for his part in the bank's takeover of National Westminster Bank. The
Vodafone board, meanwhile, awarded company chief Chris Gent a $15 million bonus
for the acquisition last year of Mannesmann of Germany.
Overall in Britain the salaries of senior executives at the country's top 100
companies rose by an average of 20.4% last year, to around $1 million, according
to New Bridge Street, a consulting firm in London. While that total is only a
fraction of U.S. executive pay, the increase contrasts with a national average
pay gain of about 4%.
Another consulting firm, Towers Perrin, said Britain's chief executives were
paid 24 times the average manufacturing salary, the highest multiple in Europe,
compared with 15 in Germany and 13 in Sweden. The average American CEO made 475
times as much as the average blue-collar worker in 1999, according to the
Limits to salaries?
Christianity is not contrary to rewarding some people more than others. All are
equal in their human dignity and none may be legitimately denied their basic
rights, including what they need in order to sustain themselves and their
family. But Catholic social teaching also places a high value on private
ownership and also recognizes some people are more talented than others -- the
Gospels acknowledge as much. This means that it is not unjust for someone in
charge of a company to receive a greater reward for the work involved in
directing its activity.
At the same time, doubts arise over the wisdom of the extraordinarily high
levels of executive compensation. Paying the CEO 475 times the average wage is a
clear case of things getting out of hand.
The concept of the universal destiny of earthly goods can shed some light on
this problem. In the document "Gaudium et Spes," the Second Vatican
Council in sections 69 to 71 explains that people should not regard material
goods as belonging exclusively to themselves. Rather, the goods have a common
destiny, in the sense that they are for the benefit of all people. The document
also notes that private property has a social dimension, and that when this is
forgotten, "ownership can often become the source of greed."
In the financial euphoria of recent years, a sense of proportion seems to have
been lost. A decent reward for talent and results is good, but within limits.