There is no issue in the workplace more sensitive than pay, particularly in this era of corporate downsizing and massive layoffs. And concerns in these areas are exacerbated by corporate America's tendency to reward short-term actions at the expense of companies' longer-term health. The scrutiny now afforded the spreading income gap between executives and rank-and-file workers is being fueled in part by the growing use of pay-for-performance plans. The plans help companies better manage labor expenses by freezing base salaries and, when effectively administered, increase worker productivity.
For senior management, such plans typically include attractive stock option grants. Those options, as reflected in Plastics News' annual executive compensation report published in this issue, were exercised heavily in last year's bull market, which registered a 34 percent surge in the index of Standard & Poor's 500 stocks.
About one-quarter of the 200 highest-paid executives representing more than 75 publicly owned U.S. and Canadian plastics companies exercised options in 1995. James M. Ringler, president and chief operating officer of Premark International Inc. of Deerfield, Ill., topped the list among processors by cashing in 150,600 shares worth $6 million - about what a premier power-hitter in professional baseball can expect to be paid for an outstanding season.
The current problem with executive pay for many firms is that the top man is reaping rewards in excess of company performance.
This year's corporate poster boy was Robert Allen, the head of AT&T. He took a stock option worth $11 million on top of a $5.85 million salary, then announced the company would fire 40,000 workers - cuts described by some managerial gurus as so deep that they slashed into corporate bone and muscle, not just fat.
Allen, critics said, was giving greed a bad name, particularly since his company did not even perform up to the S&P average. Still, indicative of some of Wall Street's misplaced priorities, AT&T's stock price rose sharply on the news of the layoffs, though it since has slid back.
Ironically, the AT&T executive was not the highest-paid American corporate chieftain. For example, the head of Atlanta-based Coca-Cola Co., Roberto Goizueta, was given a $13 million package and a stock option grant of 1 million shares worth $25 million. Coca-Cola, however, performs well, and the company's market value has soared during the past 15 years.
While the use of stock-based pay for senior executives has gained currency, it increasingly is seen by rank-and-file workers as a means of taking money from their pockets - or, worse still, as handsomely rewarding executives for hacking jobs. More importantly, since compensation is a means of controlling behavior, many workers, faced with stagnating wages, command-and-control management structures and corporate cost-cutting programs, feel angry and devalued as individuals.
That sense of insult, combined with the question of fairness and a deep American belief in egalitarianism, is alienating workers. One way to address that problem - as we suggested in this space two years ago - is to give employees, as well as corporate leaders, more of a vested interest in a company's profit performance.
Pay for performance is a good concept. Unfortunately, too few corporate boards seem to truly understand what it really means.