Despite the outcry, there's been little progress on reining in executive pay
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The financial meltdown spawned renewed outcries against the excesses of executive compensation, casting a brighter spotlight on how public companies use shareholder -- and in some cases, taxpayer -- money to pay their executives.
One of the yardsticks reformers like to use is the gap between what CEOs are paid and what Lunch Bucket Joe or Josephine takes home.
The Institute for Policy Studies, a liberal think tank, put the ratio at 319-1 in a report last fall. The ratio was based on 2008 average compensation of $10.1 million for S&P 500 CEOs (as compiled by The Associated Press) and the average hourly earnings of a production worker staffing an average weekly production schedule for a full year (as compiled by the U.S. Department of Labor).
The institute said the five top executives at the 20 financial firms that received the most taxpayer support to tide them over during the meltdown were paid $3.2 billion from 2006 through 2008 as they were "on their way to driving the U.S. economy off a cliff."
"One hundred U.S. workers making the 2008 average annual wage would have to labor over 1,000 years to make as much as these 100 executives made in three," the institute concluded.
You get the big picture.
What you may not get is the little picture: all the elements of pay packages that, when taken together, account for what critics say is the growing pay disparity that elected officials trumpet whenever they mount the bully pulpit.
Yet despite all their clamoring, there's been little significant reform on the executive pay front, according to Southern Methodist University professor Mel Fugate.
"The performance management systems that got us here are still largely intact. Therefore, we're still at risk," said Dr. Fugate, who teaches management at the university's Cox School of Business.
To shed some light on how the pay packages of the Fortunate 50 differ from the less fortunate, consider proxy statements -- the pay disclosures that public companies file with the Securities and Exchange Commission each year.
The SEC has required broader disclosure in recent years. The enhanced information, presented in legalistic language, is overlooked by most investors and beyond the comprehension of the minority who make an effort to slog through the material.
However, it offers a glimpse into a world working stiffs can only imagine.
Look closely, and you'll find incentives such as the "strategic transformational equity award" Kennametal offered to executives to combat the recession. The Latrobe toolmaker also offered them a primary prime bonus opportunity, a supplemental prime bonus opportunity as well as a long-term incentive plan, restricted stock awards and option awards.
Here are a few other proxy items that illustrate how high-ranking executives are paid.
• Dick's Sporting Goods provides two life insurance policies to chairman and CEO Edward W. Stack: one that would have paid his former wife $2.4 million if he had died on Jan. 30 and another that would have paid a beneficiary of his choice $4 million.
• While most executives have supplemental pension plans that enable them to receive retirement benefits based on the same pay and length of service formula used for the rank and file, Allegheny Energy chairman, president and CEO Paul J. Evanson is entitled to supplemental pension benefits through his employment agreement.
According to the Greensburg utility's proxy statement, "Mr. Evanson is entitled to a lump sum cash payment of $66,667 for each month he is employed by us." As of the date of Allegheny Energy's proxy, the lump sum payment -- based on 6.5 years of service -- was valued at $5.2 million. His regular pension benefits were worth $189,320.
• EQT offers "alternative work arrangements" for top executives at the time of their retirement that allow them to work a minimum of 100 hours a year and up to 300 more hours at an undisclosed hourly rate.
Retired executives who enlist can purchase health benefits at the same rate the energy company pays; are reimbursed for monthly dues to one country club and one dining club; get a BlackBerry cell phone (or its equivalent) and "reasonable access" to the help desk; and up to $15,000 in tax and financial planning services.
• Universal Stainless & Alloy Products paid senior vice president William W. Beible Jr. $497,599 last year. Of that, 27 percent -- or $135,000 -- came from a minimum bonus he was entitled to under his employment agreement with the Bridgeville specialty steel producer.
• Rue21 CEO Robert N. Fisch's $2.3 million compensation included $100,440 in "other" compensation. Among the perquisites he received were $48,545 for travel expenses he and his wife incurred traveling to and from the Cranberry discount teen retailer's headquarters, a $26,542 housing allowance and a car allowance of $18,433.
• PPG Industries senior vice president Pierre-Marie De Leener's $2.1 million compensation included $31,882 for tuition for his dependent or dependents.
While this small change of executive pay varies from year to year, the big picture seldom varies.
Critics will continue to decry it, Congress will try to reform it, and companies will resist, arguing they must pay competitively if they are to attract and retain talent.
It's one dynamic that hasn't been altered by the meltdown.
First Published May 16, 2010 12:00 am