Friday, May 05, 2006


Rep. Barney Frank of Massachusetts has introduced a House bill that would make executive compensation figures for the top three officials at publicly traded companies a matter of public record ⎯ including retirement packages ⎯ and would allow stock holders to vote on these compensation packages.

President Bush even weighed in on he issue this week.

“I am staggered by some of the compensation levels,” said Bush. “And I think it's very important for boards of directors to understand that they represent shareholders and that compensation packages need to be fully transparent, in easy-to-understand language, so that the shareholders can understand whether or not the compensation package is fair or not.”

The following illustrates why this issue is suddenly getting so much attention:

In 1980 the average CEO made 42 times the average worker.

In 2004 the average CEO made 431 times the average worker.

The average CEO of a Standard & Poor's 500 company made $11.75 million in total compensation in 2005, according to an analysis by The Corporate Library.

With a median income of $44,389 in 2004, the average American's earnings pale in relation to the average CEO's salary. If the average American worked for a half century at that income level, his $2.2 million aggregate earnings would still be dwarfed by the annual salary of a typical CEO.

And, sadly, the size of a CEO's salary doesn't always correlate to performance, or a return to investors.

Between 1991 and 2004, the stock of the previous year's most highly paid CEO underperformed the S&P 500 half the time, in some instances quite substantially.

But with the President publicly noting the problem while a bill is quietly working its way through the House, investors have reason for cautious optimism that the days unchecked, wildly outsized, CEO pay may eventually come to an end.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

No comments:

Post a Comment