Opinion Page: Bringing Home CEO Pay
MICHEL MARTIN, host:
From NPR News in Washington, I'm Michel Martin. And this is TALK OF THE NATION. The numbers are eye-popping, paychecks of as much as $100 million for some CEOs. But does the average worker care? Christopher Cox, chairman of the Securities and Exchange Commission, says they do.
Mr. CHRISTOPHER COX (Chairman, Securities Exchange Commission): There are studies showing a striking relationship between the way that executives are paid and the attitudes of workers in the companies. What's paid to the top executive turns out to be a very material component of total earnings. That's money that otherwise could be going to the shareholders if, in fact, it's too much.
MARTIN: How much is too much? Who decides what a CEO is worth? Does pay have anything to do with performance? It's TALK OF THE NATION. First, this news.
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MARTIN: This is TALK OF THE NATION. I'm Michel Martin in Washington. Neal Conan is on assignment. It was headline news. Even after a decade of sharply rising CEO pay, the average compensation for some chief executives rose more than 25 percent last year, according to several surveys. USA Today found that the median 2005 pay among chief executives, running the country's largest 100 companies, was $17.9 million. That 25 percent increase was far more than the 3.1 percent increase received by the average worker. The New York Times reported the average pay for the heads of the top 200 companies increased 27 percent last year. That, despite several years of scandals involving companies, such as Enron, Tyco and WorldCom, that led to regulatory changes, as well as the sense among some observers that companies would cut back on the eye-popping paychecks. That clearly has not happened.
So, today, executive compensation. How much is too much? Do you care how much your CEO makes? And how do they come up with those numbers? Join the conversation. Our number here in Washington is 800-989-8255. That's 800-989-TALK. Our email address is firstname.lastname@example.org. We'd especially like to hear from you if you are involved in setting executive compensation. How do you decide what a CEO is worth. We're going to talk about that for most of this hour. But first: the TALK OF THE NATION Opinion Page. Today we're moving it to the top of the show because the column we selected speaks to the issue of executive pay.
And joining us is Chris Satullo. He's the executive page editor for the Philadelphia Inquirer. In Sunday's Center Square column, he compares the CEOs with, of all things, the neighborhood babysitter, and he asks what if everybody could claim executive perks? Chris Satullo is with us now from member station WHYY in Philadelphia. Thank you, Chris, for joining us.
Mr. CHRIS SATULLO (Executive Page Editor, Philadelphia Inquirer): Thanks, Michel.
MARTIN: In your op-ed, you described a scenario. You've gone out for the evening. Okay, maybe the movie wasn't so great. But you were glad to get out of the house. You come home to the babysitter. It's time to settle up. And then what happens?
Mr. SATULLO: Well, what I set up was -- what fascinates me about executive compensation is that even executives who don't do so well, who botch initiatives, see the share price goes down, have to restate their earnings because of massive accounting errors, they don't seem to ever suffer. So I wondered what it would be like if in your typical service industry profession people got to skate in the same way. So, the scenario is basically the babysitter from hell, we've all had. You come home. There's Bud cans all over the kitchen counter. The pizza crusts are crunching underfoot in the family room. When you finally find her, she's entwined on the couch amorously with a boyfriend, with a greasy mullet, and more tattoos than Dennis Rodman. And you wonder where your kids are. And you go upstairs and your kid is bouncing up and down on the bed, giggling maniacally, watching HBO, fueled by a dinner of Count Chocula and Mountain Dew. And you think well, don't say anything. Babysitters are hard to find. So you go down and you try to settle up for the $70 you agreed upon. And then, what would happen...
MARTIN: And $70 would be what, what, 14 an hour?
Mr. SATULLO: About 15 an hour.
MARTIN: For two kids.
Mr. SATULLO: Yeah. I'm mercifully out of that a little bit. But I think that's about the going rate for two difficult kids.
MARTIN: I'm not. It caught my attention. But go ahead.
Mr. SATULLO: And well, if you know how difficult your spawn can be to take care off, you have to up the ante a bit. But then she looks at you sourly and says well, I need my bonus, my pension contribution, and my deferred compensation. And it turns out that deferred compensation is your tickets to the Eagles-Cowboys' game, which in Philadelphia is only a little bit less sacred than the Bible. And this, the column just sort of describes the conversation that ensues.
MARTIN: And you go, what? My...
Mr. SATULLO: Well, yeah. You want the what, the who, the how, the huh.
Mr. SATULLO: And she just says it's in the contract. Read the contract.
MARTIN: And to just to tie a bow on the thing, you're going to drive her home. And she says...
Mr. SATULLO: You try to get in the Toyota, drive her home. And she says, no. My contract says the BMW, back seat. And I get a bottle of chilled Evian.
MARTIN: And it better be cold. Right?
Mr. SATULLO: It better be cold, yeah.
MARTIN: So what do you think, that that's the norm? I mean, is that your idea of how you think things really go? That pay is all out of proportion to performance. And, indeed, some of these guys, and they are mainly guys, are being compensated in royal fashion despite lousy performance?
Mr. SATULLO: Yeah. I think what you have here is you have sort of a closed system of people who live in a given world. And as people such as Robert Frank up at Cornell, I think, have documented very well, people only regard their near peers and the people just one step below and above them on the pyramid, as the people they compare themselves to. And so, everybody seeking that sign of status, that sign of being loved that shows they're a little more loved than their other peers, and they completely lose track of how, what they're doing, what they're angling for, what they're demanding, what they're getting, how out of line it is with ordinary people.
Michel, in my home state of Pennsylvania, the average household income is something like $44,000. And last week, it was revealed that Lee Raymond, the retiring CEO of ExxonMobile, is making -- made $48.5 million in his last year. I did a little back of the napkin calculation, that comes down to $133,876 per day, whether he works or not. So, before he's had his first coffee break, he's already made more in a given day than the average household in my state makes all year.
MARTIN: What got you onto the topic? Do you cover business? Or did just the numbers just kind of make your head explode, and you just felt you had to write about it?
Mr. SATULLO: Hmm. Pardon.
MARTIN: I said what got you onto the topic? Do you cover business normally? Is this something that has been an interest of yours? Or did just the numbers just make your head explode when you looked at them?
Mr. SATULLO: It was actually the Lee Raymond news and the survey in the New York Times Sunday business page two Sundays ago, which revealed that executive compensation ran at about 350 times the pay of the average worker for the top CEO-type position in 2004, which is down from 700 times the pay of the average worker a couple of years before.
MARTIN: That is not a new phenomenon, though, in America at least. I mean, in this country, the multiple is far higher than it is in a lot of other countries. But, I don't know if I can -- well, I'll use this word even though it's a bit value laden -- lavishly compensated, one might want to say.
Mr. SATULLO: Mm-hmm.
MARTIN: Excessively compensated chief executives, is not a new, new thing. I mean there's the Carnegies, the Rockefellers at the turn of the century who --the Fords, Forbes, all those things. I mean, we are used to this in this country. So, is there something about today's circumstances that you find particularly galling?
Mr. SATULLO: Oh, I think one thing that's different is if you look at some of the names you mentioned, Ford, Carnegie, or Bill Gates today, they made their riches by building or inventing something. They created their company. And I think Americans are far more willing to say, well, you know, to the victor go the spoils. That's the fruits of their effort. A lot of these people we're looking at right now are simply managers who've come in to move things around and to shove paper around. They haven't really created or built anything. They're mostly mismanaging things, and a large part of their efforts seems to be to shrinking their workforces, not building anything. And I think that's what fuels resentment.
MARTIN: What about, this is always -- this is a cheap one but I'll just throw it out there anyway. Athletes, movie stars...
Mr. SATULLO: Oh...
MARTIN: I mean, a movie star can make $25 million for one film. Does that bother you?
Mr. SATULLO: It's funny that I think movie stars, I guess from the residual glamour of the early days of movies, don't get this hit as much as, I think, athletes do. I think the whole realm of professional sports has gone sour over this issue. When you have athletes who are making $7 million a year, holding out for nine million, saying I need to feed my family, or, I have to make my family secure is fueled a lot of anger and cynicism in the seats. You know, it just shows that they're completely detached from the reality their fans live. And it causes resentment.
MARTIN: But these people aren't paying themselves.
Mr. SATULLO: Mm-hmm.
MARTIN: You know, somebody has to make the decision that they're going to get this dough.
Mr. SATULLO: Yeah.
MARTIN: And I would assume that in someone, perhaps shareholders are complicit in this, because they don't throw the bums out.
Mr. SATULLO: Sure. Well, in the corporate world you have, you know, the phenomenon of interlocking directorships. Or where, you know, you serve on my board, and then somewhere down the road, I'll serve on yours. And many of the people who are making these compensations decisions on a board are actually CEO of another company. So, no one wants to blow the whistle on the game because everybody's turn to rake in the riches is going to come sooner or later.
MARTIN: You question, in your op-ed, whether the Securities and Exchange Commission's push for transparency would actually curb the exorbitant packages that CEOs get. First of all, why do you think that is? You're saying you don't really necessarily think that would help matters from your point of view. And if that wouldn't help, what do you think would?
Mr. SATULLO: Well, you hope it might, that the disclosure would cause some shame and some shareholder reaction. But shame does not seem to be a commodity that's just bubbling up everywhere in the corporate world these days. The other possibility then is, if it's really a matter of keeping up with the Joneses, once CEOs see the kind of perks and interesting little items that some of their peers at other companies have gotten through this SEC disclosure, they're all going to want it. So, it's actually going to create an upward, not a downward pressure.
MARTIN: What kind of reaction are you getting to the piece?
Mr. SATULLO: Well, you know, Philadelphia prides itself as being a working class, still-union, town, so most of the reaction has been hooray.
MARTIN: Chris Satullo is the editorial page editor for the Philadelphia Enquirer. He joined us from member station WHYY in Philadelphia. His op-ed appeared in Sunday's Philadelphia Enquirer. That story, and all the previous stories in this series, are linked at the TALK OF THE NATION page at npr.org. Thank you, Chris.
Mr. SATULLO: Thank you, Michel.
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