The Rumble Over Executive Pay

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Spitzer's view enjoys broad support among institutional shareholders. "Excessive executive pay undermines the very principles of free enterprise," says Phil Angelides, the California state treasurer and a board member of the California Public Employees' Retirement System. He endorses recent efforts to rein in those eye-popping stock-option grants but notes that CEOs still seem to find a way to get richer at their employer's expense. Grants of restricted stock have in some cases replaced the value of options for executives. Retirement benefits and deferred-compensation packages can also amount to millions of dollars and yet remain relatively invisible to investors.

Then there are the perks that simply aren't disclosed. Jack Welch's retirement package from General Electric included such booty as a Manhattan apartment and use of the corporate jet, worth some $2.5 million; it was discovered by investors only after the perks were disclosed during his divorce proceedings. "Essentially, CEOs talk to their compensation consultants and say, 'What is it that would get me in the cross hairs of my shareholders?' They then avoid that and come up with another way to get a big raise," says Sarah Teslik, executive director of the Council of Institutional Investors.

Indeed, while you may not have noticed your raise last year (if you even got one), senior executives felt theirs. Median compensation for CEOs of companies in the S&P 500 rose 27% in 2003 on top of an 11.4% hike in 2002, according to the latest pay survey by the Corporate Library. Other surveys, which don't account for exercised stock options, found just single-digit increases in salary and bonus. And, yes, corporate profits rose sharply during 2003, up 18%. But that wasn't the case in 2002, and the gap between pay for the average worker and the typical large-company CEO has widened further. The typical CEO now makes $301 for every $1 paid to the typical employee. That's up from $42 to $1 in 1982.

Pay experts point out that CEOs are like free agents in sports, and that you can't fault them for taking big packages (within legal boundaries) any more than you can wonder why A-Rod cashes his paychecks. Over the years a few companies have put CEO pay caps in place, but many have either abandoned or raised them in the face of competition. Socially progressive Ben & Jerry's, which for a decade capped executive pay at seven times the salary of the lowest-paid worker, dropped the provision in 1994 when it sought a CEO to replace co-founder Ben Cohen. Whole Foods Market, the popular organic supermarket chain, has raised its cap twice--from 8 to 1 in 1997, to 14 to 1 today, though that's still considered low.