Excessive pay for top business executives–particularly for poor performers–has outraged millions of Americans and investors and now even Virginia Senator Jim Webb, who criticized the widening gap between rich and poor in his response to President Bush’s State of the Union message.
Few people know, and Webb didn’t say, that Congress has repeatedly stifled a bill to do something sensible about wretched executive excess: disallow business tax deductions for executive salaries in excess of twenty-five times the salary of the lowest-paid employee in the same organization.
The current furor was set off by Home Depot’s disclosure on January 3 that it had fired chairman and CEO Robert Nardelli while easing his pain with a $210 million severance package built into his sign-on contract. It included $88 million in bonuses, retirement benefits and stocks.
In July Pfizer CEO Hank McKinnell walked away with nearly $200 million. In 2005 ExxonMobil chairman and CEO Lee Raymond retired with an even more gargantuan bundle–$398 million.
“The average pay for chief executives rose to 369 times that of the average worker in 2005,” Josh Fineman of Bloomberg News wrote on January 4. That was “up from 131 times in 1993 and 36 times in 1976, according to a study by Kevin Murphy, a finance professor at the University of Southern California.”
Putting Murphy’s numbers into individual terms: Suppose that in 1976 an average worker’s annual pay was $10,000 and a chief executive’s $360,000. Now suppose that in 2005 the worker’s pay was $20,000. The executive’s pay would be $7,380,000. A $10,000 raise for the worker, a $7,020,000 raise–702 times larger–for the executive.
Webb drew another stark contrast by using 1968, the year he graduated from college, as his basis of comparison. Then, he said, “the average corporate CEO made twenty times what the average worker did; today, it’s nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day.”
During Nardelli’s six-year reign, Home Depot lost market share to rival Lowe’s, and share prices fell 7.9 percent, according to initial reports. Actually, Allan Sloan, Newsweek‘s Wall Street editor, wrote, the stock rose from $38.94 to $40.16. But put this and the $210 million bon voyage severance package aside and focus instead on Nardelli’s total compensation of $225 million, an average of $37.5 million annually. The $72,100 he was making every week was far more than the lowest-paid Home Depot employee was earning in a year.