Here's why people get so irritated by executive compensation: No matter how it is repackaged, no matter how it is tied to performance, no matter how many shareholder protests and resolutions occur, the numbers keep going up and up, far faster than the paychecks of American workers, often without a corresponding improvement in performance.
The average executive compensation package on the Plastics News 150 is 69 percent higher than it was five years ago. Had the salaries of the workforces they manage accelerated at the same pace, employees making $50,000 in 2001 would be making $84,500 today. But, with average increases of 4 percent a year, someone at the same job making $50,000 in 2001 might be making $62,000 today, at the best.
On top of that, the new disclosure rules from the Securities and Exchange Commission — which were expected to result in more accountability through more transparency — only opened investor and worker eyes to the magnitude and previously hidden details of the retirement, severance and change-in-control packages of top executives.
Many executives on the PN 150 have packages that would give them anywhere from $12 million to $29 million if their companies were acquired and they were let go. And those packages usually include multimillion payments to cover excise taxes, $60,000 to provide fully paid health care and $50,000 for outplacement services to help the fired executive land a new job.
Why wouldn't workers be angry and outraged at the size of such packages? They rarely get health-care coverage and are lucky to get one week's pay for each year of service when they are laid off. They face skimpy unemployment benefits for 26-52 weeks that, on a monthly basis, often don't cover the cover cost of COBRA premiums to keep health care.
If that weren't enough, the new disclosure rules also masquerade the real value of stock options and performance-restricted stock grants. Now, firms must report only the value of stock grants and awards exercised in a given year, not the value of awards granted in the period covered by the proxy statement.
Lastly, the new disclosure requirements show the lengths to which some companies will go to still reward executives at the same level, even when there is public pressure to change some things that have become unacceptable.
For example, some companies winced at reporting many of the perks that had become commonplace: country club memberships, personal use of corporate jets and payments of as much as $50,000 so the executive could hire a financial planner.
So they axed such packages. But then they rolled the estimated value of the eliminated perks into a salary adjustment to keep the executive whole.
As Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware and a member of the advisory council of the National Association of Corporate Directors, so sardonically said: “They may take it out of one pocket, but it just goes back into another.”
Until that game of shuffling money into a more acceptable vehicle of payment ends, the hue and outcry over executive compensation will continue.