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With calls for increased CEO pay disclosure coming from both Congress and institutional investors, Securities and Exchange Commission chairman Christopher Cox said last week that the SEC would soon be focusing on putting in place regulations that would require companies to be more upfront about what top executives are being paid.
"It is absolutely a top priority for early '06," SEC Chairman Christopher Cox told the Los Angeles Times, "It's important to get clear information — both to investors and to the directors that represent them."
Cox emphasized that he wanted a bottom-line number that would allow comparisons across companies, as opposed to a detailed break-down of where the money is coming from. "It is much more important for directors, investors and the marketplace to know that someone is being paid $10 million than to know that he or she is being paid in the form of postage stamps or rare coins," he said.
Cox's willingness to tackle the issue comes after pressure from both Congress and institutional investors. Last month, Rep. Barney Frank (D-Mass.) introduced a bill that require all publicly-traded companies to disclose total compensation paid to executives in their annual report.
And earlier this month, TIAA-CREF, the largest U.S. manager of retirement funds for university and college employees, publicly called on companies to report top executive salaries. Meanwhile, Ann Yerger, the executive director of the Council of Institutional Investors, said that executive compensation was the groups, "Number 1 issue." And 10 pension funds from the US, Canada and Europe – representing between them $1 trillion – recently sent a confidential letter to the SEC urging the agency to more closely look at executive pay and its lack of connection to performance.
Patrick McGurn, executive vice president of Institutional Shareholder Services, the biggest proxy adviser to U.S. fund managers, said, "We're definitely expecting to see a lot of confrontation over pay issues this year, especially where there have been outrageous pay-for-failure packages or large perquisites that have been hidden from view at firms."
The median Fortune 500 CEO received compensation worth $15 million last year, according to a study by Harvard law professor Lucian Bebchuk. According to the Institute for Policy Studies and United for a Fair Economy's Executive Excess report, at the 367 biggest companies, average CEO pay was at $11.8 million, as compared to $27,460 for the average worker. The 431-to-1 ratio is up from 301-to-1 in 2003. In 1982, the ratio was 42-to-1. Around most of the industrialized world, the ratio is closer to 25-to-1. Meanwhile, the percentage of company profits going to the top five executives more than doubled between 1993 and 2003, growing from 4.8 percent to 10.3 percent. A recent study by the Corporate Library also that showed median total compensation for CEOs increased 30% in 2004 and average compensation increased 91%, while worker pay rose only 2.2%, which when adjusted for inflation, is actually a decline of 0.4%.
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Ninety percent of institutional investors think that corporate executives are overpaid, and 85 percent think that these excessive payments are hurting corporate America's image, according to a new study by consulting firm Watson Wyatt. Additionally, 64 percent think that companies are not properly disclosing executive pay packages.
"Companies should take these findings seriously," said Ira Kay, global director of Watson Wyatt's compensation practice. "While many companies are making progress in addressing these concerns, boards need to do a better job of reassuring investors that they are intent on paying for performance." Kay also noted that institutional investors own about 60 percent of major corporations.
Kay recommended that companies fully disclose pay packages and link them more closely to performance.
"Companies need to find the right balance between satisfying investors and recruiting and retaining the best executives," Kay said. "While that can be tricky, boards need to undertake the effort. It's far better than continuing to risk public criticism, which could ultimately lead regulators to impose a one-size-fits-all solution."
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Florida's pension fund—the nation's fourth largest with $116 billion in assets—is joining the bandwagon of large state pension funds who use their considerable weight to push corporations toward more responsible practices.
Last week, Florida Governor Jeb Bush said that he was sick of "outrageous" executive compensation and "undemocratic" proxy voting, and he and two other state leaders would call on companies who want the state's investment dollars to improve their corprorate governance standards.
"The one that angers me the most is the lack of tying of executive compensation to results," Governor Bush said. "I think the shareholders and the retirees that rely on the pension are equally outraged as I am and it's appropriate for us to vote our shares and for us to say we want pay be tied to results. It's just that simple."
The state's pension fund director, Coleman Stipanovich, suggested the fund might come up with a "focus list" of companies with excessive compensation or too little shareholder say about who serves on the board of directors. "For some of these salaries, there seems no rhyme or reason; they're self-perpetuating," Stipanovich said. "When you see an executive making 400 times what their average employee makes there is something wrong with that."
In turning its attention to corporate responsibility, issue, Florida joins California, New York, Connecticut and several other states that have begun to push for changes at large corporations through their state pension funds.
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With Washington swimming in lobbying scandals, Sen. John McCain (R-Ariz.) and Rep. Chris Shays (R-Conn.) have introduced legislation that would require lobbyists to disclose all their donations and fundraising expenditures and would also require all lobbying records to be available within 48 hours.
The legislation follows a recent series of hearings about the exploits of lobbyist Jack Abramoff, held by McCain's Indian Affairs Committee.
"Much of what the committee learned was extraordinary," McCain, an Arizona Republican, said in a statement. "Yet much of what we uncovered in the investigation was unfortunately the ordinary way of doing business in this town."
"We're going to know more about who's paying who to get what out of lawmakers," said Craig Holman, a campaign-finance lobbyist for Public Citizen's Congress Watch told reports. "We'll also know which lobbyists are playing golf with lawmakers on these travel junkets."
McCain's bill would also shine some light on the revolving door process, whereby legislators secure lucrative contracts in private lobbying while still in Congress. Under the bill, lawmakers would have to disclose within three days if they are negotiating private employment that could pose any potential conflict of interest.
There are now 26,932 registered lobbyists in Washington, who are required to fill twice-yearly reports. Between 1998 and 2004, organized interests spent $13 billion lobbying the federal government. Of the 100 biggest spenders, 98 were businesses and business trade groups. Among the biggest spenders, three (Altria, Verizon, and General Electric), spent more than $100 million apiece. By comparison, the largest lobbying expenditure for a non-business group was the Association of Retired Persons (AARP), which spent $44,290,000, placing it 29th on the list. The AFL-CIO, ranked 74th, spending $26,444,810. Additionally, roughly three-quarters of federal campaign contributions are business-related.
In other lobbyist related news, two Senators, Conrad Burns (R-Mont.) and Byron Dorgan (D-ND) are giving back money they received from Jack Abramoff. Dorgan is returning $67,000 and Burns is returning $150,000.
"The contributions given to my political committees by Jack Abramoff and his clients, while legal and fully disclosed, have served to undermine the public's confidence in its government," Montana Sen. Conrad Burns said in a statement.
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Three corporations—Coca-Cola, PepsiCo, and Eli Lilly—last week agreed to disclose their political activities to shareholders, responding to pressure from shareholders and the Center for Political Accountability, an advocacy groups that advocates transparency in corporate political donations.
These companies join include Morgan Stanley, Johnson & Johnson and Schering-Plough.
"As we see it, political spending can create serious issues for corporate reputations," said Bruce F. Freed, a co-director of the Center for Political Accountability.
Many more companies, however, have refused to make such disclosures. Most corporate managers have also been hostile to shareholder proposals calling for companies to disclose their political activities. Few shareholder resolutions on the issue have received more than 10 percent of votes.
Wal-Mart, which opposed such a resolution, said in a statement that "Because parties with interests adverse to Wal-Mart also participate in the political process to their business advantage, any unilateral expanded disclosure requirements could benefit these parties while harming the interests of Wal-Mart and its shareholders."
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The Internal Revenue Service is reportedly investing another KPMG tax shelter that was sold to big corporations, including Yum Brands (which owns Pizza Hut, Taco Bell, and KFC). Earlier this year, KPMG paid $456 million to settle charges stemming from its role in developing and promoting four improper tax shelter that cheated the federal government out of $1.4 billion.
The Yum case was first documented in 2004 when federal prosecutors filed a lawsuit against a senior Yum executive. What investigators found was that the company had undertaken some potentially fishy deals with a private offshore insurance company it had set up known as Glenharney. The insurance company was then used to generate losses in the form of unpaid claims, which would be used to reduce the company's taxes. Yum paid $750,000 in fees to KPMG, according to court papers. The scheme also involved selling a slice of that company to Credit Suisse First Boston, for $8 million.
It is not clear how widely this tax particular shelter, known as Insureco, was promoted, though some suggest it was quite widely promoted.
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Global Exchange has released its list of "Most Wanted" Corporate Rights Violators of 2005 for International Human Rights Day.
From Global Exchange's report:
Corporations carry out some of the most horrific human rights abuses of modern times, but it is increasingly difficult to hold them to account. Economic globalization and the rise of transnational corporate power have created a favorable climate for corporate human rights abusers, which are governed principally by the codes of supply and demand and show genuine loyalty only to their stockholders.
Though it isn't easy, we can check the power of corporations—and citizens around the world are stepping up to do it. Global Exchange developed this list of some of the world's worst corporate abusers to illustrate that on issues as diverse as assassination, torture, kidnapping, environmental degradation, abusing public funds, violently repressing political rights, releasing toxins into pristine environments, destroying homes, discrimination, and causing widespread health problems, familiar companies like Dow Chemical, Coca Cola, Caterpillar, Lockheed, Philip Morris, and Wal-Mart play a big role. Now we need you to take action!
This list of "MOST WANTED" corporate criminals gives you information about the abusive behavior of this year's top fourteen worst corporations, tells you who is responsible, and how to connect with and support people who are doing something about it. The more you know, the less these corporations can continue their abuses out of public eyesight: so share this information with your friends, get on the phone with the CEOs themselves, and exercise your rights as a citizen and consumer today.
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Last week, Senator John McCain (R-Ariz.) and Rep. Chris Shays (R-Conn.) introduced legislation that would increase federal lobbying disclosure.
After the latest wave of lobbying scandals, it's time to shed more light on the problem. There are almost 30,000 registered lobbyists, yet citizens who want to know whose lobbying who have to wait at least six months to know. By then, legislation in question is often already passed.
McCain's bill would require disclosure of lobbying within 48 hours. It would force more disclosure of lobbyist fundraising. And it would require lawmakers who are in talks with private lobbying firms while still making laws to disclose their discussions.
Please, call your representatives today and tell them that it's time to get behind lobbying reform. Tell them that your sick of lobbyists running the show in Washington. Tell them to support the McCain/Shays disclosure bill.
We encourage you to tell everyone you know about the new Citizen Works book, The People's Business and to distribute promotional flyers locally. Flyers are available online, or if you would like to have some flyers mailed to you, please e-mail news@citizenworks.org.
The People's Business, which is available in stores everywhere, examines the very nature of corporate power, presenting a range of strategies to curtail it, explaining how ordinary people can restore citizen control. Bringing together the recommendations of the Citizen Works Corporate Reform Commission—a coalition of leading authors, activists, scholars, and professionals—The People's Business is a vital, clearheaded plan for strengthening individual rights, transforming corporations into engines of public prosperity, and creating a sustainable, life-respecting society where the people have the power.
Bolstered with relevant history and examples, The People's Business is a lively book that will appeal both to deeply-committed long-time activists looking for a coherent approach in the struggle for corporate accountability as well as thoughtful citizens everywhere who may be looking for immediate measures that serve as effective means of corporate reform.
It is our hope that The People's Business will serve as an important tool in educating people about what they can do to challenge corporate power. But it will only be an important tool if people actually read it. That's why we need your help in spreading the word!
Why not pick up your copy at a bookstore today if you haven't already?
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