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Some CEO pay cuts
In a little-noticed development, America's top corporate leaders are already facing pay cuts.
The moves, which range from bonus cutbacks to shrinkage in stock-options values, come as the impact of accounting scandals reaches a crescendo with calls for new checks on CEO compensation.
Corporate directors are displaying a tough new attitude. Several boards have cut executive bonuses in the past year. And at a recent Stanford University conference attended by about 150 directors, a major emphasis of participants was how to stand up to CEO requests for higher pay.
Large investors are increasingly troubled by gargantuan executive pay packages. At Bank of America, in a rare breaking of ranks with management, a majority of shareholders recently approved a resolution to let shareholders vote on severance packages, dubbed "golden parachutes."
Falling share prices are imposing pay discipline of their own. Last year, as the value of stock options fell along with the stock market, average CEO compensation at major companies dropped from $13.1 million to $11 million, according to the Institute for Policy Studies in Washington.
While much of the reason has to do with a three-year slump in stock prices and an economic slowdown, the plunge in pay also reflects tougher attitudes that have been emerging as a host of corporate scandals sober up those responsible for setting executive pay.
It follows a decade when chief executive officers saw their salaries soar along with investor faith in the ability of managers to engineer stellar performance.
"There is a sense that these huge pay packages are not productive, but counterproductive," says Kenneth Bertsch, director of corporate governance at TIAA-CREF, which manages $275 billion of pension money. Today, compensation committees of corporate boards "are in more cases pushing back" against executives asking for more money, he says.
Some executive bonuses have been cut. WorldCom Inc. this week sued its former chief financial officer, Scott Sullivan, seeking return of a $10 million bonus. Failing Polaroid Corp. changed a plan to pay at least $5 million in bonuses to top executives after employees and retirees protested. In May, Ford rescinded bonuses from last year for 6,000 senior managers who had collectively received $442 million in 2000.
At FleetBoston Financial Corp., CEO Terrance Murray and his successor, Charles Gifford, had their salaries frozen in March at 2000 levels and bonuses cut in half. But they did win lucrative pension plans from their board.
Why boards don't cut pay
Because of their desire to remain collegial with CEOs, boards find it tough to cut their pay. But shareholder resolutions seeking some form of executive pay restraint are getting far more backing than in the past.
Besides the Bank of America vote, 12 other efforts to limit severance pay won an average 32 percent of shareholder votes, according to the Investor Responsibility Research Center. Trade union and some other pension funds, with huge holdings of corporate stock, are often backing such initiatives.
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