It is easy to take potshots at the gaping difference between pay increases granted to top executives in the plastics industry and their employees. Consider the numbers: Average pay increases for chief executive officers and other corporate leaders at publicly held firms rose more than 50 percent in the past four years; pay for most everyone else was up 10-20 percent.
While some of those potshots may be naive, the system does bear close watching and criticism.
On one hand, the widening gap is common across American industry and reflects the reality of the marketplace. Top talent is hard to find. The Plastics News stock index rose 24 percent last year, creating wealth and jobs for many people. So who can begrudge the corporate titans for taking home a pay boost of 13 percent on average, including stock options?
The increasing use of stock options to tie executive pay to corporate performance is working as intended, some would say. Corporate performance is way up, on average, and so is compensation of top officials.
But as one executive compensation specialist put it, the real test of the pay-for-performance trend will come when the market turns sour. Will CEOs and boards be as enamored of stock options then?
The current system has its critics, some of them large institutional investors who argue that giving huge stock-based pay packages dilutes the value of shares held by other investors. Others say some executives are being rewarded not for stellar corporate performance, but because they are riding the coattails of the market's surge. And some compensation specialists say putting too much pay in stock can make executives too tied to a short-term Wall Street point of view.
In fact, some executives seem to score big no matter what happens. Total compensation for Rubbermaid Chairman and CEO Wolfgang Schmitt went from $1.4 million in 1994, including stock sold, to $2.5 million in 1996, as his company's two-year return on investment lost 18 percent. Company officials say some of the increase is due to meeting goals designed to improve the firm's long-term footing, but it's easy to be skeptical.
Small wonder that criticism of executive pay packages resonates so much with the public.
Clearly, it's a complex topic and companies want to attract executives with the ability to implement a strategic vision. But pay packages should reflect actual gains made by the CEO and not send the misguided message that top executives deserve the lion's share of the credit for corporate financial success.