- August 26 - CEOs of companies under investigation for accounting irregularities
earned 70% more from 1999 to 2001 than the average CEO at large companies, according
to a new report, "Executive Excess 2002: CEOs Cook the Books, Skewer the
Rest of Us."
The CEOs of 23 large companies under
investigation earned an average of $62 million from 1999 to 2001, compared with
an average of $36 million for all CEOs in the annual Business Week executive pay
The report looked at companies which
are under investigation by the SEC, Department of Justice, and other agencies
and which have had market capitalizations over $1 billion sometime since January
2001 and: Adelphia, AOL Time Warner, Bristol Myers Squibb, CMS Energy, Duke Energy,
Dynegy, El Paso, Enron, Global Crossing, Halliburton, Hanover Compressor, Homestore,
Kmart, Lucent Technologies, Mirant, Network Associates, Peregrine Systems, PNC
Financial Services, Reliant Energy, Qwest, Tyco, WorldCom, and Xerox.
Collectively, the CEOs at firms under
investigation pocketed $1.4 billion from 1999 to 2001. While these executives
are cushioned by the vast wealth they have accumulated, their shareholders and
employees are dealing with massive losses. Between January 1, 2000, and July 21,
2002, the value of shares at these firms plunged by $530 billion, about 73 percent
of their total value.
Employees of the 23 companies have
suffered a total of 162,000 layoffs since January 2001. Tyco, for example, has
laid off 18,400 workers in that time. The company paid CEO Dennis Kozlowski $331
million from 1999 to 2001 and gave him over $135 million for luxury living. Kozlowski
has since resigned in disgrace.
Taxpayers shoulder the burden when
corporations show different books to shareholders and the government. A recent
IRS study shows that hocus-pocus accounting techniques allowed companies to report
profits to shareholders that were 24% higher than the profits reported to the
IRS. Profits reported to shareholders rose from $753 billion in 1996 to $817 billion
in 1998, while corporate profits reported to the government declined over the
same period from $660 billion to $658 billion.
Stock option accounting explains
a major portion of this discrepancy, especially in the high tech sector. Merrill
Lynch estimated that if stock options were treated as expenses, earnings for the
S&P 500 would have been 21% lower in 2001 and an estimated 10% lower in 2002.
When Congress reconvenes after Labor
Day, legislation to require the same option accounting for shareholders and the
government will be debated.
High-tech companies lobbying to preserve
the status quo on stock options have a great deal to lose. TechNet, a high-powered
group of high tech executives, is leading the lobbying effort. If the companies
run by TechNet Executive Board members had been forced to expense options in 2001,
their reported earnings per share would have declined between 14 percent and 100
CEO pay remains stubbornly high,
despite a slight drop in CEO pay from 2000 to 2001. The CEO-worker pay gap of
411-to-1 is nearly ten times as high as the 1982 ratio of 42-to-1.
Worker pay is again stagnating: the
Commerce Department reports lower wages and salaries in August 2002 than in December
2000. If worker pay had grown as fast as CEO pay since 1990, production workers
would have averaged $101,156 in 2001 instead of $25,467. If the minimum wage had
grown as fast as CEO pay, it would have been $21.41 an hour in 2001 instead of
The explosion of corporate scandals
has helped stoke a growing backlash against excessive executive compensation.
The report offers a 9-course menu of remedies, including expensing options, ending
taxpayer subsidies for excessive pay, banning special perks to executives, and
improving transparency and corporate accountability.
The report, authored by Scott Klinger,
Sarah Anderson, Chris Hartman, John Cavanagh and Holly Sklar, is the ninth annual
CEO pay study by the Institute for Policy Studies and United for a Fair Economy.
Scott Klinger is a Chartered Financial Analyst and also the co-author of "Titans
of the Enron Economy: The Ten Habits of Highly Defective Corporations" (available
on the web at www.faireconomy.org).
The Institute for Policy Studies
is an independent center for progressive research and education in Washington,
DC. United for a Fair Economy is a national organization based in Boston that
spotlights growing economic inequality.
A PDF version of the report is
available on the web: http://www.FairEconomy.org
For hard copies, call
617-423-2148 x13 or e-mail email@example.com