Good fortune: Rising CEO pay is immune to even sagging stocks

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If anything is drummed into the heads of American workers these days, it's being accountable.

Accountable for delivering a good day's work. Accountable for showing up on time, healthy and ready to produce. Accountable for maintaining one's skills and staying ahead of the competition. Accountable even for sacrificing when the company needs a hedge against hard times.

After reading the Post-Gazette's latest report on the Fortunate 50, an analysis of executive pay in the Tri-State region, many workers might wonder who holds high-paid executives accountable.

This year's report, produced by staff writer Len Boselovic and published last Sunday, shows that while the median U.S. household income fell 2 percent after adjusting for inflation, this group saw nearly a 12 percent jump in compensation over last year's group. What many workers below the penthouse suite will find even more frustrating is that some of the most generous compensation went to top-ranking officers at companies with declining stock returns.

Among the Fortunate 50 individuals, who received compensation in 2011 between $3.3 million and $21.3 million per person, 22 executives oversaw companies that posted a declining stock return for the most recent five-year period.

Some of those stock declines were modest and in single-digit percentages for the period, including 2.1 percent down at Wesco International (CEO John J. Engel, paid $4.8 million), 2.4 percent down at PNC Financial Services (CEO James E. Rohr, $16.6 million) and 2.9 percent down at Matthews International (CEO Joseph C. Bartolacci, $4.4 million).

But other executives collected their rich rewards after even deeper swoons in stock values over the five years: 17.6 percent down at U.S. Steel (CEO John P. Surma, paid $10.2 million), 12.4 percent down at American Eagle Outfitters (ex-CEO James V. O'Donnell, $14.4 million) and 10.7 percent down at Allegheny Technologies (CEO L. Patrick Hassey, $16.7 million).

Even the most fortunate of the Fortunate 50, Mylan CEO Robert J. Coury, was paid $21.3 million -- not when his company's stock was going gangbusters, but when it made a measly 1.6 percent return for investors in the five-year stretch.

Although assorted factors determine an executive's compensation, it's fair for regular workers -- those who run the machines, answer the phones and deal with customers -- to wonder why their higher-ups' million-dollar pay plans seem to be unaffected by poor stock performance.

That could change with more reports like the Fortunate 50 and input from firms that advise pension funds, mutual funds and other institutional investors on whether rich pay packages are justified from an investor's perspective.

Under the 2010 Dodd-Frank financial reform, shareholders of public companies are required to hold a nonbinding vote on executive pay plans. One consultant said that so far this season shareholders at only 18 of the 934 companies it analyzed -- 2 percent -- voted against the packages.

CEOs should not take comfort in that. Excessive pay, particularly in years and at companies where it appears unjustified, could be the sleeping giant of executive accountability.

The growing gap between executive and employee pay is its own scandal -- with the average CEO now making 380 times as much as the average worker, compared to 42 times three decades ago. But showering money, stock and assorted perks on executives who can't deliver for their share holders -- in other words, be accountable -- is a different kind of outrage.

Armed with more information, investors shouldn't take it lying down.


First Published May 25, 2012 12:00 AM


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