WASHINGTON – Three years after the passage of landmark legislation aimed at strengthening regulation of major U.S. companies, one of the most criticised disparities characterising today’s corporate culture – the outsized compensation offered to top executives – continues to grow.
These extraordinarily lucrative salaries and benefits appear to have little connection to overall corporate performance. According to estimates released Wednesday, 38 percent of the top-paid chief executive officers (CEOs) of U.S. companies over the past two decades were fired or headed companies that were either bailed out by taxpayers or forced to pay significant fraud-related fines.
“An alarming number of CEOs are not adding exceptional value to [the U.S.] economy. They are extracting vast sums from it,” a new report from the Institute for Policy Studies, a Washington think tank, stated.
“An alarming number of CEOs are not adding exceptional value to economy. They are extracting vast sums from it.”
–Institute for Policy Studies
“American chief executive compensation continues on what has become an inexorable upward march, even as the overall economy sputters through five years of Great Recession and tepid recovery. The most widely heralded CEO pay reforms…have so far done little to slow the executive pay march.”
The study looks at the performance of the 241 CEOs who have ranked among the United States’ 25 highest-paid executives at some point over the past 20 years. Researchers found that many of their companies reported “blatantly” poor performances.
Nearly a quarter of the companies either shut down or received government bailouts following the 2008-2009 financial crash. Eight percent of these CEOs were fired but still received final bonuses averaging 48 million dollars, while an additional eight percent headed companies that had to pay fraud-related settlements of more than 100 million dollars per firm.
“Shareholder representatives say that the problem of excessive CEO pay is so widespread that even if you wanted to create a portfolio of those companies that enforce reasonable CEO pay, it would be very difficult to do so,” Sarah Anderson, an author of the new report and director of the Global Economy Project at the Institute for Policy Studies, told IPS.
“This is not just a problem of a few bad apples,” Anderson said. “Rather, it’s about a corporate culture that’s encouraging CEOs to demand this type of compensation – even though it’s bad for workers, shareholders and taxpayers.”
The U.S. model
The average compensation for heads of the country’s 500 largest companies was around 12.3 million dollars in 2012, according to estimates by the AFL-CIO, one of the United States’ largest trade union federations. Excluding an unusual massive pay cut taken by one executive (Apple CEO Tim Cook), that figure rose five percent over 2011, despite the fact that median incomes for most U.S. households fell from 2009 to 2011 by 0.4 percent.
CEO pay has skyrocketed in recent years compared to average U.S. salaries. In 1993, executive salaries were around 195 times those of average workers, according to the AFL-CIO. Last year, they were 354 times larger.
“Two decades have essentially recalibrated our nation’s moral sensibilities,” the Institute for Policy Studies report states. “The outrageous has become the everyday.”
Meanwhile, this U.S. “model” of outsized executive salaries is widely credited with encouraging executives in other countries, particularly Europe, to push for similar levels of compensation, to the anxiety of top economic analysts.
“We must move in the direction of more prudent compensation practices,” Christine Lagarde, head of the International Monetary Fund, the Washington-based institution tasked with ensuring global economic stability, said in January at the World Economic Forum.
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