ECONOMY - Robber Barons Alive and Doing Very Well

"In a Weak Economy, Why Is CEO Pay on the Rise?" PBS Newshour 10/4/2011

Excerpt

MARGARET WARNER (Newshour): The outrage of the "Take Back Wall Street" protesters in New York and others around the country are in no small part connected with huge executive pay. Median executive compensation has more than quadrupled over the last four decades, even through the financial crisis, while non-supervisory workers have seen a 10 percent decline.

Now, from new disclosures required by the Securities and Exchange Commission in corporate reports, we're learning more about what's behind these pay packages, as well as the so-called "golden parachutes" for CEOs who've been fired. One noteworthy example of those, just last week, the fired CEO of HP, Leo Apotheker, walked away with more than $13 million in severance while the company struggles.

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MARGARET WARNER: But now, the companies say it's necessary to either recruit or retain top talent. You, however your -- one of your studies looked at the methodology by which they decide, what's the going rate for the top talent. And you found something that suggested it was a little skewed. Explain that.

MICHAEL FAULKENDER, University Of Maryland: That's right. There does seem to be some evidence that when firms benchmark themselves against other firms that they select -- they select competitors that are more likely at the higher end of the pay distribution than at the lower end.

So whenever you think about setting pay for an executive, you need to provide them sufficient amounts such that they will stay in the position or want to take a new position with your firm. And in doing so, you compare the pay package you're offering to what people at other firms make.

But what we're seeing is that they're more likely to compare to highly paid CEOs at competitors, rather than the lower paid members of that same industry.

MARGARET WARNER: And sometimes not even competitors in the same business, right?

MICHAEL FAULKENDER: That's right. In fact, what the recent SEC disclosures are telling us is that now that they have to document the firms against whom they benchmark, we're seeing more than half the firms coming from -- that they benchmark against coming from outside of their industry.
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MARGARET WARNER: James Stewart, staying with you, up in New York where you are, we have these protests on Wall Street. And people there are comparing, you know, the large salaries to corporate executives versus their own sense that they're kind of falling behind. Is it provable that if CEOs here didn't get these huge payments that there would be enough to raise everyone's salary, or is it kind of a drop in the bucket?

JAMES STEWART, New York Times: Well, it really is -- it's -- there aren't enough of them. It's -- even though the numbers are huge for individuals, it's a drop in the bucket when you look at total revenues and total payrolls for a giant company like HP or many of the other Fortune 500 companies.

So -- but I can understand why they're so upset. It's the principle of the thing. This system is insane. And why does it only benefit the wealthy, whereas the average working person, if they get fired, they're lucky to get two weeks to take home. They don't get lavish pay. They don't get paid more to fail than if they succeed.