Outrageous! $54,000 Per Hour

Too many hotshot execs rake in a ton of cash -- whether or not they earned it.

In March of this year, Stephen Crawford became a co-president of the Wall Street investment firm Morgan Stanley. About 100 days later, he quit amid a management shake-up with his company's stock in the doldrums. Walking away from a job can be scary, but Crawford, who'd been with the firm for 19 years, probably wasn't sweating. The 41-year-old strolled off with a severance package that included two years' salary and bonus. Grand total: $32 million.

Here's some more math for you. According to the Bureau of Labor Statistics, the mean annual earnings for full-time workers in 2003 was $37,784. As Morgan Stanley's co-president, Crawford pulled in $54,000 per hour!

This obscene amount isn't a wild exception. According to a study by Graef Crystal, a business columnist and compensation expert, chief-executive pay rose 22% last year, while the average worker's pay rose by around 3%. When the group United For A Fair Economy looked at total compensation figures for 2003 (including the estimated value of stock options and other awards and bonuses), it found that CEOs were paid over 300 times what the average production worker made. That's not a gap, that's the Grand Canyon.

It's stunning on a global scale too. The Economic Policy Institute has reported that, on average, American CEOs make two to three times more money than CEOs in Europe.

Americans believe in getting rewarded for hard work, and CEOs no doubt work hard. But we also believe in fairness, which is one good reason to be furious over how the chips are stacked.

Here's another: At a time when America is drowning in debt and facing tough challenges from foreign competitors like China and India, our business leaders may be undermining confidence in the U.S. economy. According to Pete Peterson, former chairman of the Federal Reserve Bank of New York, investors need confidence that corporate honchos are honest and earning their huge payouts.

So it's disturbing to see some corporate leaders actually failing their way to riches. Viacom CEO Sumner Redstone took home about $28 million in 2004, including a bonus of $16.5 million, even as his company's stock dropped 11% during the fiscal year. Applied Materials CEO Mike Splinter got a tidy $5 million bonus in 2004, despite a stock slide of more than 22%. That same year, Rick Wagoner, CEO of General Motors, saw GM stock plunge 25%, yet he still pocketed a $2.5 million bonus -- only slightly less than his award in 2003, when GM stock actually rose. So much for accountability.

The sweet contracts CEOs sign these days can mean that even a chief executive tossed out of a sinking company lands on a huge pile of cash. Hewlett-Packard's Carly Fiorina oversaw a 50% drop in HP's stock, yet when she was dumped, she got a $21 million severance package. "If you screw up big enough, you can get monstrous amounts of pay on your way out," says Graef Crystal.

The average Joe might be more outraged if he understood the sorts of payouts and benefits that corporate brass are getting. Stock grants still provide a windfall for many chief executives, despite new regulations that force companies to account for options as expenses. Yahoo! CEO Terry Semel exercised $230 million in options last year. His company has had strong earnings of late, so it's fair to say that Semel earned his $600,000 salary, plus a hefty award for boosting the stock price. But $230 million? Come on.

Then there are perks that can range from free luxury apartments to country club dues. New York University finance professor David Yermack found that in 2002 more than 30% of Fortune 500 CEOs were allowed personal use of corporate jets -- at no charge. Think the shareholders and rank-and-file employees of Leucadia National holding company were surprised by a USA Today report that executive Joe Steinberg racked up nearly $750,000 in personal jet flights last year -- an amount that exceeded his annual salary of $630,000?

At the end of the day, though, CEOs aren't the only ones who should be questioned. What about the corporate boards that sign off on all that compensation? "The typical director is more of a lap dog than a guard dog when it comes to setting CEO pay packages," says Brandon Rees, a research analyst with the AFL-CIO. "Chief executives are putting their own yes-men and golf buddies on their boards, and shareholders are being shut out of the process." You might say that those tight boards have founded their own get-rich-quick club.

Somehow it all brings to mind a recent quip from Steve Martin in our own Quotable Quotes: "All I've ever wanted was an honest week's pay for an honest day's work." Before you chuckle, though, think about Stephen "$54,000 per hour" Crawford -- and you'll realize the joke is on us.

From Reader's Digest - October 2005

 

• Michael Crowley
• • Work & Career
• • Your Tax Dollars

• Outrageous! Green Laws Gone Bad
• Are we protecting nature or ruining lives?
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• Outrageous! Just Sick of It
• How you are rewarding government employees millions of dollars they didn't earn.
• 
• Outrageous! Statistically False
• The more we believe the twisted numbers, the dumber we get.
• 
• Outrageous! $54,000 Per Hour
• Too many hotshot execs rake in a ton of cash -- whether or not they earned it.
• 
• Outrageous! Expel These Teachers
• They're incompetent in the classroom, but just try kicking them out of school.
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• Outrageous! Play Ball -- Or Else!
• When fat-cat sports owners want a big new stadium, guess who they shake down?
•