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The
Corporate Reform Weekly
Vol V, #16
In
Short
Executive
Pay
1.
CEO Pay up 27 percent for 2005, study finds
2.
US CEOs earn twice as much as British CEOs, study finds
3.
Outgoing ExxonMobil CEO gets $398 million retirement package, second-biggest
ever
Corporate
Governance
4.
More shareholder activists are pushing for majority voting
Lobbying
Reform
5.
House GOP considers lobbying reform strategy
Scandal
6.
Skilling claims his innocence in Enron trial
This
Week’s Action Item
Tell
your Representative: You want real lobbying reform
Executive
Pay
1.
CEO Pay up 27 percent for 2005, study finds
Average
total pay for CEOs was up another 27 percent last year, to $11.3 million,
according to a survey of 200 large companies conducted by Pearl Meyer &
Partners. Median pay, meanwhile, was up to $8.3 million, a 10.3 percent jump
from 2004. Most of the growth came from stock and other long-term payouts,
which were up $1.9 million. Perks were up $188,000.
The
biggest compensation package of 2005 went to Occidental Petroleum CEO Ray R.
Irani, who took home $63 million in total pay. Bruce E. Karatz of KB Home and
William E. Greehey of the Valero Energy Corporation tied for second place with
$40 million in total compensation.
The
New York Times used the
release of the CEO pay survey to do a series of stories on skyrocketing
compensation.
In one story,
Eric Dash asks why compensation continues to grow exponentially, even though,
according to a recent Los Angeles Times/Bloomberg survey, 81 percent of
Americans now think that CEOs of large companies are overpaid:
“Many forces
are pushing executive pay into the stratosphere. Huge gains from stock options
during the 1990's bull market are one major reason. So is the recruitment of
celebrity C.E.O.'s, which has bid up the compensation of all top executives.”
“Compensation
consultants, who are hired to advise boards, are often motivated to produce big
paydays for managers. After all, the boss can hand their company lucrative
contracts down the road.”
“Compensation
committees, meanwhile, are often reluctant to withhold a bonus or stock award
for poor performance. Many big shareholders, such as mutual funds and pension
plans, have chosen not to cast votes critical of management. The results have
been a growing gap between chief executives and ordinary employees, and often
between the boss and managers one layer below.”
In another
story, Claudia H. Deutsch interviews Charles M. Elson, the director of the John
L. Weinberg Center for Corporate Governance at the University of Delaware on
the effects of a new SEC rule requiring clearer disclosure of CEO pay.
“As he
sees it,” Deutsch writes, “forcing companies to bring excessive pay to light
is, at best, treating a symptom. It does little to cure the underlying
diseases: runaway compensation packages, granted by boards that barely monitor
the performance of the chief executive.”
"Disclosure
is like aspirin; it can make you feel a little better, but it can't even cure
the common cold," Elson told the Times. "The fact is, a board that
overpays the C.E.O. is in all probability not minding the store on other issues,
either."
For more, see:
Behind Big
Dollars, Worrisome Boards
By CLAUDIA H.
DEUTSCH
http://www.nytimes.com/2006/04/09/business/yourmoney/09elson.html
C.E.O. Pay
Keeps Rising, and Bigger Rises Faster
By ERIC DASH
http://www.nytimes.com/2006/04/09/business/businessspecial/09payside.html
2.
US CEOs earn twice as much as British CEOs, study finds
US CEOs get
paid almost twice as much as British CEOs, according to a recent compensation
study conducted by Towers Perrin. The study found that the average large
company CEO is the US makes $2.2 million a year (62% of which comes from
bonuses and long term incentives), whereas the average large company CEO in
Britain makes $1.2 million. (35% of which comes from bonuses and long-term
incentives.
One
reason for smaller British CEO salaries may be a 2002 British corporate reform
that requires shareholders to vote on executive-compensation packages.
Additionally, ownership of British companies tends to be more concentrated
among fewer shareholders, giving those shareholders more power. In Britain,
"the top 10 shareholders will usually be about 50% of your company,"
says Stephen Cahill, the London-based head of executive remuneration in Europe
for Mercer Human Resource Consulting, told the Wall Street Journal. Even at the largest companies, the top
10 shareholders regularly own 20% to 25% of the shares. In general, British
shareholders have much more power when it comes to voting directors off the
board.
Additionally,
British companies tend to do a much better job of tying pay to performance. The
Towers Perrin study notes that bonuses, stock grants, and other long-term
incentives are much more closely linked to performance in Britain than in
America. Often a British company will have to perform better than median share
performance in its industry for executives’ options or restricted shares to
vest.
A Wall Street Journal article on the study also suggests that
British and American shareholders have different attitudes towards
compensation: “British shareholders, like many throughout Europe, tend to be
more conservative than Americans in terms of how deserving they think
management ultimately is. This attitude can be seen at work in the British
equity market, and in its regulation, where real pressure is repeatedly brought
to bear to temper executive pay.”
But
momentum for shareholder involvement on executive pay is growing the U.S. This
year, the American Federation of State County and Municipal Employees (AFSCME)
has filed shareholder resolutions that would require an advisory shareholder
vote on compensation. The proposal has been filed at Home Depot Inc.,
Countrywide Financial Corp., Merrill Lynch & Co. and U.S. Bancorp.
In their
2006 proxy statements, Merrill Lynch and U.S. Bancorp both advise shareholders
not to adopt the proposals, citing an existing linkage of pay and performance,
as well as competitive pressures.
For more, see: “When
it comes to CEO pay, why are the British so different?" By JOANNA L. OSSINGER, Wall
Street Journal
3.
Outgoing ExxonMobil CEO gets $398 million retirement package, second-biggest
ever
Recently
retired ExxonMobil CEO Lee Raymond will enjoy a $398 million retirement
package, the second-biggest compensation package ever in corporate history,
second only to former Disney head Michael D. Eisner, who received a $550
million package in 1997.
According to
SEC filings, Raymond’s mega pay-out includes $140 million in cash, stock,
options and a pension plan that he received last year, plus another $258
million in stock, options, and long-term compensation. Raymond will also get to
use the company aircraft for free, get his country-club fees covered, and get
another $1 million a year for consulting work with the company.
Earlier this
year, ExxonMobil reported $36 billion in profits, the largest ever for a
corporation, thanks to high oil prices.
The company is
also showering generosity on current CEO Rex W. Tillerson, who received $13.4
million in 2005, which includes $1.67 million in salary; a $1.25 million bonus,
restricted shares worth $8.75 million, and an incentive payout of $1.73
million. Tillerson also earned $2.3 million by exercising stock options.
For more, see;
“Exxon Chairman Got Retirement Package Worth at Least $398 Million,”
By JAD
MOUAWAD, New York Times: http://www.nytimes.com/2006/04/13/business/13exxon.html
Corporate
Governance
4.
More shareholder activists are pushing for majority voting
In an effort
to bring more shareholder democracy to corporate boardrooms and hold directors
accountable for poor oversight and approving outrageous CEO pay packages, a
growing number of activists shareholders are supporting shareholder resolutions
calling for majority voting for directors.
Currently,
most director elections are held Soviet-style, with one slate of directors,
nominated by management. With no opposition, directors can be opposed by the
majority of proxy statements and still win.
The Washington Post reports:
“Led by
several activist unions, shareholders at dozens of companies are pushing rule
changes that would allow them to vote for or against each director and require
that directors receive a majority of the votes cast.”
“The United
Brotherhood of Carpenters and Joiners of America and its allies have taken
advantage of Securities and Exchange Commission rules that allow shareholders
who hold at least $2,000 in stock for a year to submit governance proposals to
push more than 140 companies to adopt majority voting. Most of the proposals
would not automatically force out losing directors -- under most state laws,
"holdover" directors who fail to win reelection may continue serving
until their replacements are named.”
“The goal is
to make directors more directly accountable to shareholders, rather than
corporate management. Shareholder activists say they hope more accountability
will help protect against excessive executive compensation and corporate
fraud.”
"When
every director knows they have a hurdle -- they have to get a majority of the
votes cast -- it will help focus the directors," Ed Durkin, director of
corporate affairs for the United Brotherhood of Carpenters and Joiners, told
the Post. "It may not lead to dozens and dozens of directors being thrown
out, but we think it will improve the operation of all boards."
The proposal
appeared on 12 proxy statements in 2004, winning an average of 12 percent of
shares. Last year it came up at 80 companies and was on 62 ballots. It passed
at 17 companies, and, on average, received 42 percent support.
For more, see:
“A Battle Over the Boardroom: Activist Shareholders Push for Majority Rule In
Selecting Directors,” By Brooke A. Masters, Washington Post : http://www.washingtonpost.com/wp-dyn/content/article/2006/04/13/AR2006041301658.html
Lobbying
Reform
5.
House GOP considers lobbying reform strategy
With lobbying
reform on the agenda in the House, the big question for GOP leaders right now
appears to be whether or not to bring the lobbying bill to the House floor in a
way that would allow for amendments.
The bill that
House GOP leaders will probably bring to the floor will be very weak, and
opening it up to amendments could force members to vote on a number of sensible
amendments that House leaders are trying to kill. The House bill does increase
disclosure and makes some headway in earmark reform, but does practically
nothing to ban gifts or travel and does not create an independent oversight
ethics committee.
Democratic
leaders argue that limiting debate on a bill designed to create a more open and
transparent political process makes no sense. “How can you have a debate on
open government if you restrict the discussion about it?” said Jennifer Crider,
spokeswoman for House Minority Leader Nancy Pelosi (D-Calif.) told The Hill.
Limiting
debate on the lobbying-reform bill is “counter to what the legislation is
supposed to do,” said Mike Surrusco, director of ethics and campaigns at Common
Cause, a government-watchdog group, told The
Hill.
The House
measure calls for new disclosure rules for lobbyists and for the first time
would publicly attach members’ names to their earmark requests.
If GOP leaders
open up the bill to amendments, Reps. Christopher Shays (R-Conn.) of
Connecticut and Heather Wilson (R-NM), are expected to offer up an amendment
that would allow for an independent oversight body.
Other
proposals floating around that could wind up as amendments include requiring
members to pay full value for use of corporate jets and prohibiting floor
debate on bills until 24 hours after the Rules committee sets the rules of
debate. Additionally, the House Judiciary Committee approved an amendment by
Rep. Chris Van Hollen (D-Md.) that would require lobbyists to report the
campaign checks they solicit for or deliver to lawmakers in addition to the
campaign contributions they gave directly to lawmakers.
The Senate has
already passed a lobbying reform bill, 90-8. Though better than the bill moving
forward in the House, it will still do little to reform the culture of
lobbying. For some idea as to what real lobbying reform would look like, be
sure to check out This Week’s Action Item.
GOP mulls best
path to reforms
By Jim Snyder
and Patrick O’Connor
http://www.thehill.com/thehill/export/TheHill/News/Frontpage/041206/news3.html
“Real Lobbying
Reform,” Washington Post editorial: http://www.washingtonpost.com/wp-dyn/content/article/2006/04/12/AR2006041202387.html
Scandal
6.
Skilling claims his innocence in Enron trial
Former Enron
CEO Jeffrey Skilling took the witness stand last week in his own trial to
proclaim his innocence.
Skilling
called the allegations against him “absurd” and said that the prosecution’s
view of things isn't “consistent with what really happened at the company,''
“There's a lot
of damage done to people not as a result of the facts, but as a result of a
sort of rewriting of history to accomplish certain objectives people had,''
Skilling told jurors.
Lawyers for
Skilling and Enron founder Kenneth Lay dispute the fact that the two top
executives knew that the company had engaged in massive financial fraud when
they made repeated public statements about the financial health of the company.
Rather, the defense claims that Skilling and Lay were deceived by their underlings,
like former CFO Andrew Fastow, and that Enron’s collapse was the more akin to a
classic run on the bank, fueled by panic and short-selling.
Skilling
claimed it wasn’t until October 2001, two months after he had retired as CEO,
that he first thought the company might be in trouble. That was when he read a
newspaper story about the company taking out $3 billion in emergency credit.
“That was the first clear indication to me there is a liquidity problem at the
company,'' Skilling testified. “It dawned on me that this was it. My company
was struggling for its life at this point.''
Skilling
described himself as a victim, who was doubly devastated – first by the
destruction of the company he ran, then what he described as a “witch hunt” to
get him.
“I'm devastated
because a company that was a fine company was brought to its knees
unnecessarily,'' said Skilling, who also said he “bled Enron blue.''
“I know there
are a lot of people at Enron Corp. that will never recover from what
happened,'' he added. “I feel awful.''
But what was
worse, Skilling told jurors, was when “the witch hunt started. People lost
money. People lost jobs. The easiest thing to do is look for witches.''
Skilling also
tried to debunk claims made by prosecutors. For example, he disputed that he
knew that the company’s retail and broadband units were falling apart when he
talked them up to analysts. “That is absurd. It's just not true,''
Skilling said, calling the government's description of the units as failing as
“a total misrepresentation of the state of events occurring at the time,''.
Skilling said
he was confident that the businesses would become profitable soon.
"Was
Enron taking massive positions and speculatively trading?" Daniel
Petrocelli, Skilling’s lawyer, asked. Skilling replied: "In my opinion,
no.”
For more, see:
“Enron's Skilling Alleges Prosecutors Twisting Facts,” by Bloomberg News: http://www.bloomberg.com/apps/news?pid=10000087&sid=a9XtKPqb3n34&refer=top_world_news#
“Skilling
Blasts Prosecutors for Twisting Enron Facts,” By Thomas S. Mulligan
http://www.latimes.com/business/la-041306enron_lat,0,6757041.story?coll=la-story-footer
“Skilling's in
Good Humor on the Stand: Former Enron Exec Gets a Few Laughs While Making His
Case,” By GINA SUNSERI, ABC News: http://abcnews.go.com/Business/story?id=1840550&page=1&business=true
“The Enron
Standard,” by Lee Drutman for TomPaine.com: http://www.tompaine.com/articles/2006/04/13/the_enron_standard.php
This
Week’s Action Item
Tell
your Representative: You want real lobbying reform
Lobbying
reform is moving ahead in the House this week, and your representative needs to
hear from you!
One problem is
that there is far too little attention being devoted to what exactly is
provided in exchange for the favors that lobbyists bestow on members of
Congress.
Those gifts --
the campaign contributions, the airplane rides, the visits to resorts disguised
as speech opportunities -- are not really gifts as such. They are more like
investments (or quasi-bribes). And they are investments that pay back beyond
the dreams of the greediest Wall Street prospector, in the many tens of
billions of dollars of corporate welfare: grants and direct subsidies,
government giveaways, bailouts, tax subsidies, loopholes and other escapes,
below-market loans and loan guarantees, export and overseas marketing
assistance, pork for defense, transportation and other companies, regulatory
removals, immunities from civil justice liability, and a host of other
government-provided benefits.
The
goodies bestowed by Congress on their patrons are too numerous and diverse to
be addressed with any single reform approach, much less one that is mainly
about disclosure with no independent enforcement mechanism.
But good legislation could go a
long way toward reducing corporate welfare doled out in the form of giveaways,
subsidies, and inflated government contracts to big corporations.
Here’s
the real reform:
In
one sweeping bill, Congress should decree that every federal agency shall
terminate all below-market-rate sales, leasing or rental arrangements with
corporate beneficiaries, including real and intangible property; shall cease
making any below-market-rate loans or issuing any below-market-rate loan
guarantees to corporations; shall terminate all export assistance or marketing
promotion for corporations; shall cease providing any below-market-rate
insurance; shall terminate all fossil fuel or nuclear power research and
development efforts; shall eliminate all liability caps; and shall terminate
any direct grant, below-market-value technology transfer or subsidy of any
kind.
The bill
should also amend the Internal Revenue Code to eliminate all corporate
"tax expenditures" (Beltway talk for loopholes and gimmicks for
corporate taxpayers) listed in the President's annual budget.
Some
of what gets cancelled in such a bill might be good public policy. If so,
Congress should reauthorize it. But there's too much accumulated
contribution/lobbyist-driven institutionalized graft for a case-by-case review
to eliminate what's in place. What's needed is a clean slate.
Other steps should be taken to
complement a clean-sweep bill:
Citizens should be
given standing to sue in order to challenge corporate welfare abuses -- to
restrain agencies that reach beyond their statutory powers to dole out
corporate welfare.
Automatic sunsets of corporate
welfare should be established, with every corporate welfare program
automatically phasing out in four years after initial adoption, and every five
years thereafter.
Annual agency reports should be
required on corporate welfare, with each federal agency listing every program
under its purview that confers below-cost or below-market-rate goods, services
or other benefits on corporations -- and identifying the recipients. The
president's budget already does this for tax giveaways, though the specific
beneficiaries are not identified.
A ban on corporate welfare for
corporate wrongdoers. Corporations convicted of serious wrongdoing should not
be eligible to receive any of the government's largesse.
Corporate
welfare cuts to the core of political self-governance, because it is
perpetuated in large measure through campaign contributions and the subversion
of procedural and substantive democracy. The perpetuation of corporate
welfare itself misallocates public and private resources and exacerbates the
disparities of wealth, influence and power that run counter to a functioning
political system over which the people rule.
Contact your
congressional representative today: http://www.house.gov/writerep/
