U.S. Wage Gap Widens


By Abid Aslam

Inter Press Service
Apr 13, 1999
Washington - U.S. corporate chiefs are amassing ever-increasing pay raises, widening the gap between themselves and their workers while irking some investors. Last year, chief executive officers (CEOs) of U.S. corporations pocketed 419 times the average wage of a blue-collar worker, according to the U.S. Bureau of Labour Statistics (BLS).

Corporate inequality has multiplied apace, with CEO compensation swelling from 85 times what workers earned in 1990, to 209 times in 1996 and 326 times in 1997, before surging to last year's level. The latest survey of executive compensation from ' Business Week' magazine and Standard and Poor's Compustat, a market research firm, finds that CEOs now make 36 percent more than they did a year ago - and 442 percent more than they did in 1990. Blue-collar workers, however, have received only a 2.7 percent raise and white collar workers, 3.9 percent, according to the BLS Employment Cost Index.

That glaring disparity is moving a network of investors to sponsor efforts to tie CEO pay to the wages of a company's lowest-paid labourer. The group, called 'Responsible Wealth', is backing proposals to be voted on in coming months by shareholders of seven major U.S. companies. If successful, the resolutions would set a maximum ratio between CEO and worker earnings at each company. The firms include financial services leader Citigroup, General Electric, and telecommunications giant AT&T.

Many workers earn less today than they did in the early 1970s, according to the non-governmental coalition 'United for a Fair Economy' (UFE). The group says the average labourer's weekly pay in 1998 remained 12 percent below the 1973 level, adjusting for inflation - despite a 33-percent increase in productivity in the same period.

Bosses' earnings also bear little relation to performance. According to the latest survey of the 365 largest U.S. companies, CEO compensation has ballooned despite often lacklustre corporate performance. Companies covered by the survey turned in a 1.4 percent fall in earnings last year - even as the benchmark Standard and Poor's 500-stock index rose 26.7 percent. Yet, CEOs did even better than the stock market, enjoying a 36-percent pay hike. ''Despite the anecdotal connection, no academic has proven that higher pay creates higher performance,'' the survey notes.

Corporate leaders have not seen a large rise in salaries as such. Rather, 80 percent of their earnings in 1998 came from gifts of stock, known as 'options', awarded to them by their own companies. CEOs also continue to garner lavish enticements. These include bonuses for taking their jobs in the first place, guaranteed retirement deals, and ironclad severance packages to provide them with a 'golden parachute' in case they are jettisoned.

Stock options and other long-term compensation plans first came to dominate executive pay in 1983. Ostensibly designed to motivate CEOs to steer their companies toward higher earnings and provide higher returns for shareholders, the stock schemes have become especially popular as a means of avoiding taxes levied on salaries exceeding one million dollars. Thanks to these non-salary payments, ''the head honcho at a large public company made an average 10.6 million dollars last year,'' according to the 'Business Week' survey. Even that sum ''is chicken feed next to 1998's best pay cheque,'' the survey notes. Walt Disney Co. CEO Michael Eisner pocketed 575.6 million dollars and between them, the five top-paid executives raked in a whopping 1.2 billion dollars. Yet, Eisner and Citigroup chief Sanford Weill - last year's third best-paid CEO - top the charts of company bosses who ''gave shareholders the least.'' They also rank fourth and fifth, respectively, in the standing of ''executives whose companies did the worst relative to their pay.''

This mismatch has strengthened support for 'indexed options', under which a company's gift of stock to its CEO would go through only if a firm's stock did better than its competitors or a market average. Federal Reserve Chairman Alan Greenspan - the U.S. equivalent of a central bank chief - in February voiced his support for such 'indexing' and publicly criticised the level of CEO pay before a Congressional banking committee. Last year, the Council of Institutional Investors, representing more than 100 large pension funds, also called for indexing. Such measures would fall short of fixing the imbalance between executive and workforce pay, according to Betsy Leondar-Wright, communications director at UFE. ''The important thing is to start linking the top and bottom of the pay scale,'' says Leondar-Wright. ''If a company grows, the top and bottom should grow together. If there's going to be pain - meaning layoffs at the bottom - then there should at least be a freeze on raises at the top.''

UFE, which assembled the 'Responsible Wealth' investors' group, wants Congress to pass a proposed 'Income Equity Act' capping the tax deductibility of executive compensation at 25 times the amount paid the lowest full-time worker in any given firm.

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