Executive Pay

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While common sense may dictate that executives are rewarded for successes and punished for failures, corporate America stands such logic on its head. Company profits declined for the third consecutive year in 1991, plunging 19%. But CEO pay increased 6%, not counting bonuses and long-term incentives. Westinghouse Electric CEO Paul Lego took a 69% pay cut when his bonus for '91 was eliminated. But he was awarded 700,000 shares in options, with a present- day value of $4.1 million, even though the company lost $1.1 billion last year. Counting the options, Lego actually received a 41% increase in compensation. By contrast, Japanese executives recently competed with one another to see who would take the largest pay cut in the wake of the Tokyo stock-market plunge.

"Pay masks a much bigger problem," says Robert Monks, whose group, Institutional Shareholder Partners, has waged proxy fights for board representation at Sears, Roebuck. "The real problem is the lack of accountability. CEOs are today's absolute monarchs and their boards are the House of Lords, and they feel they can thumb their noses at us shareholders without fear of being held accountable. But I guarantee you, the days of corporate royalty are over."

Until this year, investors seeking to submit proposals aimed at curbing executive pay were largely frustrated by SEC rules that disallowed such petitions on the basis that compensation was a matter of day-to-day ! management. But under pressure from Congress and some institutional investors, the SEC changed its tune by allowing shareholders to put "nonbinding" resolutions to a vote at annual meetings.

Such petitions threaten to turn once passive annual meetings into rancorous affairs. Two weeks ago, for example, shareholders at Baltimore Gas & Electric asked the company to "voluntarily cap the total pay and other compensation of its executive officers to no more than 20 times the pay of the average employee of the company."

The measure was defeated, but many corporate boards are choosing to negotiate a peaceful settlement with aggressive shareholders rather than face an embarrassing tongue-lashing. When the United Shareholders Association, whose 65,000 members own $320 billion worth of stock in 4,000 major corporations, sponsored a petition challenging the compensation for the executives at Time Warner, top officers of the company quickly paid a visit to negotiate a deal: the group agreed to drop its challenge on pay, and the company would eliminate its takeover defenses, including so-called poison-pill provisions designed to scare away potential bidders.

The California Public Employees' Retirement System, known as Calpers, the nation's largest public pension fund, sent letters to 12 corporations, including American Express, ITT and Dial (formerly Greyhound). One by one, senior executives from each company paid a visit to Calpers' Sacramento headquarters to negotiate with its chief, Dale Hanson. American Express boss James Robinson, for instance, immediately bowed to Calpers' demands that the company set up an independent compensation committee. Only Dial has so far refused to meet with Calpers.