CEO pay debate spans the Atlantic
By Sarah Anderson
European business leaders have traditionally taken home far less compensation
than their US counterparts. But European executive compensation has been
rising, and these pay increases have citizens in European nations deeply
concerned. In fact, public outrage on both sides of the Atlantic has
contributed to an unprecedented political debate over what to do about
excessive executive pay.
In 2006, the 20 highest-paid European managers made an average of US$12.5
million, only one-third as much as the 20 highest-earning US executives. The
Europeans earned less
despite leading larger firms. On average, the 20 European firms with the
highest-paid executives on the continent had sales of $65.5 billion, compared
with $46.5 billion for the 20 US firms. And yet these paychecks are still
staggering by European standards.
In the United States, the top 20 highest-paid executives of publicly traded
companies raked in an average of $36.4 million in 2006. The top earner: Yahoo's
Terry Semel, whose $71.7 million in annual earnings consisted almost entirely
of options grants estimated to be worth $71.4 million. The Internet-services
chief also cashed in $19 million in options last year. Semel stepped down as
chief executive officer in June, amid widespread shareholder concern over the
company's sluggish performance.
The second- and third-highest-paid US CEOs last year both hailed from the oil
industry, a sector that continues to benefit from record-high world crude-oil
prices. Bob Simpson of Texas-based XTO Energy took in $59.5 million, including
a $31 million cash bonus and $27 million worth of new options grants. He
cleared another $39.8 million exercising previously awarded options.
XTO Energy last year also donated $6.8 million to Baylor University, Simpson's
alma mater, for the construction of a sports complex. In exchange, the XTO
proxy explains, the university will name the new athletic complex after Simpson
- and provide him "access to certain sporting events".
The sixth-highest-paid CEO in 2006 was Angelo Mozilo of Countrywide Financial,
with $42.9 million. While the company's subprime-mortgage woes have meant
homelessness for many of its clients and joblessness for many of its workers,
Mozilo is set for life.
French executives dominated the European list, making up 10 of the 20
highest-paid executives. The top-earning French executive, Carlos Ghosn of
Renault, took in $45.5 million, mostly in stock options. This total does not
include Ghosn's compensation from Nissan. Ghosn has been CEO of both Renault
and Nissan since 2005. Once considered a hero of the auto industry for
resuscitating the Japanese auto maker, Ghosn has had to face angry shareholders
of late as both firms have performed sluggishly. Ghosn recently gave up his
post as head of Nissan's North American operations.
The top-ranked German executive, Josef Ackermann of Deutsche Bank, collected
$12.4 million. Ackermann became a lightning-rod figure in Germany's ongoing
executive-pay debate when he faced criminal charges for having helped approve,
as a board member, massive bonuses for executives at another German company.
Ackermann and five other board members at this company were charged with
"breach of fiduciary trust".
Ackermann's unapologetic defense of both the bonuses and his own massive
paycheck provoked charges that the Swiss-born banker was injecting a more
ruthless style of US capitalism into a relatively egalitarian German society.
The former head of the German Social Democratic Party called Ackermann's
behavior "disastrous to the image of democracy".
European pay debate
The steep rise in European executive pay has set off a firestorm in countries
that have been characterized by a relatively strong sense of economic
solidarity and egalitarianism in the past several decades. Some signs of the
controversy:
In Switzerland, a CEO of a small company is spearheading an effort to gather
enough signatures to force a national vote on proposals for reining in pay,
such as allowing shareholders to block pay packages and banning "golden
parachutes", which guarantee that executives will receive large benefits if
their employment is terminated.
In France, new President Nicolas Sarkozy has promised to ban golden parachutes
for poorly performing executives. The matter became a campaign issue when
Airbus gave its top executive an exit pay package of $8.2 million, despite
having announced 10,000 job cuts.
In Germany, a government commission on corporate governance recently proposed
capping executive severance payments.
In the United Kingdom, shareholders obtained the right to cast advisory votes
on executive pay in 2003. Since then, Australia and Sweden have followed suit,
while the Netherlands and Norway have adopted binding annual shareholder votes
on compensation. Legislation that would give US shareholders similar advisory
powers passed the House of Representatives this spring.
A July Financial Times/Harris public-opinion poll dramatically captured the
growing European outrage over executive pay. More than 60% of those surveyed in
Britain, France, Italy and Spain, the poll found, would like to see their
government set caps on top business-executive pay. In Germany, a 47% plurality
supports pay caps.
American opinion on CEO pay
In the United States, only 32% of the public currently supports an outright pay
cap on executive earnings. But average Americans appear to be every bit as
outraged over CEO pay excess as average Europeans. Indeed, 77% of Americans say
corporate executives "earn too much". Only 11% admire "those who run" America's
"largest companies" either "a great deal" or "quite a bit".
Some members of Congress have responded by introducing legislation to curb
excessive pay through tax reform and giving shareholders the right to vote on
pay packages.
All this suggests that meaningful reforms to rein in runaway executive pay
could be on the horizon, as many political leaders in Europe and the United
States seem to be finally catching up to the public outcry.
Sarah Anderson is the director of the Global Economy Project at the
Institute for Policy Studies in Washington, DC. She is a co-author of
"Executive Excess 2007" and 13 other annual reports on executive compensation
co-published by the Institute for Policy Studies and United for a Fair Economy.
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