-Caveat Lector-
>From www.wsws.org
>>>My subject line entry comes from the following from the article:
> The executive cashed in $706.1 million in stock options, even as
> returns of the software company plunged 57.4 percent, devastating
> small investors..... Enron boss Kenneth Lay “cashed in $100 million
> worth of stock last year, some of it sold at a time he was urging
> workers to buy
A<>E<>R<<<
}}}>Begin
WSWS : News & Analysis : North America
US executive pay soars again in 2001
By Shannon Jones
4 April 2002
Back to screen version| Send this link by email | Email the author
Despite a recession, massive layoffs and declining stock prices in 2001, the
compensation of US executives at the biggest corporations surged ahead last year,
with CEOs raking in billions in salaries, bonuses and stock options.
One of the top moneymakers in 2001 was Oracle CEO Lawrence J. Ellison. The
executive cashed in $706.1 million in stock options, even as returns of the software
company plunged 57.4 percent, devastating small investors. Ellison’s compensation,
according to one estimate, is about 15,689 times the pay of a typical worker.
Another software company, Cisco Systems, awarded its CEO, John Chambers,
stock options worth a potential $226.7 million in 2001, even as stock returns fell 70.6
percent. Meanwhile SBC Communications awarded its top officer Ed Whitacre a
package worth $155 million, up 163 percent from 2000. The company saw its stock
price drop 18 percent in 2001.
These figures illustrate a central feature of capitalism at the beginning of the
twenty-
first century: the parasitism and corruption of the business elite. More and more the
activities of the corporate bosses take the form of wholesale looting of society’s
wealth. This phenomenon is not just limited to a few companies, but is widespread
and pervasive.
According to a report published in the March 25 edition of USA Today, overall
compensation for US executives increased 24 percent in 2001 to a median of $10.2
million. At the same time, the Standard & Poor’s 500 stock index fell 13 percent. The
figures were compiled for the newspaper by the Investor Responsibility Research
Center, which reviewed 267 companies with revenues over $1 billion.
During 2001 top CEOs raked in an average of $11.4 million apiece from cashing in
stock options, despite the overall decline in the market. In order to compensate
executives whose outstanding stock options had lost their value because of the fall in
share prices, many companies issued large amounts of new options.
This is the second year in a row that CEO compensation has risen while stock prices
declined. In 2000, average CEO pay package rose 60 percent. During the same
period the typical investor lost 10 percent of his or her portfolio and workers’ wages
barely kept up with the rate of inflation.
According to a study conducted by Forbes magazine, average CEO compensation,
including stock options, grants and so-called restricted stock, increased 166 percent
between 1996 and 2000, to an average of $7.43 million. At the same time, corporate
profits grew only 16 percent and per capita income grew 18 percent.
Even these figures do not reflect the full extent of the disconnect between executive
pay and the performance of the economy. In the wake of the Enron scandal and
other high-profile collapses like that of telecommunications giant Global Crossing,
the accuracy of corporate profit reports in general have been called into question.
Some have suggested that a large share of recent reported increases in corporate
earnings have been the result of cooked books, not actual improvement in
performance or productivity. Indeed, given the universal use of stock options to
reward corporate executives, there is a huge incentive for bosses to seek ways to
artificially drive up stock prices, even to the point of fraud.
Enron is only the most well-known case of a practice that is widespread throughout
corporate America. Again, according to Forbes, “In 2000 alone, Enron’s top five
executives received payments of $282.7 million.... Roughly 80 percent of the total
compensation came from cashing in stock options. The ultimate value of these
options depended on share price.”
A March 1 op-ed piece in USA Today, entitled “CEOs cash in too easily on crumbling
corporations,” said Enron boss Kenneth Lay “cashed in $100 million worth of stock
last year, some of it sold at a time he was urging workers to buy, and almost all of it
before Enron restated its earnings and began the death spiral that destroyed many
workers’ pensions.” The writer continued, “A new study by the Progress & Freedom
Foundation, a free-market think tank in Washington, found that 60 insiders at seven
telecommunication companies cashed in more than $1.4 billion in stock as
companies were falling apart during the past two years.”
However, outright fraud is not necessary for CEOs to make huge pay gains, even as
the companies they head foundered. In most cases corporate boards are willing to
lavish rewards on executives as corporate stock plunges and firms head into
bankruptcy. Said David Thompson, director of the Economic Research Institute,
“We’ll continue seeing huge stock option grants and solid increases in CEO pay.
That’s the game. It’s been going on for years. It’s incestuous. It’s not going to
change.”
Many former corporate directors and former politicians sit on corporate boards. In
addition, they are often directly beholden to the executives they are supposedly
overseeing. For example, it has been revealed that three Tyson Food directors have
business deals with former chairman Don Tyson and his son, CEO John Tyson (
USA Today, March 5, 2001). Despite flat profits in 2001 the board awarded Don
Tyson an $8 million consulting deal and a bonus; John Tyson received a $2.1 million
bonus.
Other boards have been even more generous. Shares of the industrial conglomerate
Tyco International fell 12 percent last year. However, the board of directors awarded
CEO Dennis Kozlowski a 36 percent increase in salary and bonus. It also awarded
him $30.4 million in restricted shares and stock options worth $76.4 million.
Shares of Coca Cola fell 23 percent in 2000, yet corporate chief Douglas Daft got a
17 percent pay increase. He also got stock options potentially worth $45.7 million and
restricted stock worth $47.9 million.
Meanwhile, the board of directors of the bankrupt retailer K-Mart is seeking to award
former CEO Chuck Conaway a $6.5 million bonus, even as the company shuts down
hundreds of stores and lays off 22,000 workers.
In the wake of the Enron scandal various proposals have been advanced to rein in
executive pay, such as tying executive compensation more directly to company
performance. However, the assumption on which these schemes are based is
fundamentally flawed. All reform proposals take as their premise the false idea that
the capitalist market is in some way compatible with equity and social justice. In
fact,
as time goes on it becomes ever more apparent that inequality, waste and fraud on a
mass scale are not incidental to capitalism. They are inevitable products of the drive
for private profit.
Copyright 1998-2002
World Socialist Web Site
All rights reserved
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