September 01, 2005
War Millionaires: Defense Contractor CEO Pay Up 200 Percent Since 9/11
by Willliam Baue
The ratio between CEO and worker pay across the market climbs to 431 : 1, up from 301 : 1 last
year, according to a new CEO pay study from United for a Fair Economy and the Institute for Policy
"I don't want to see a single war millionaire created in the United States as a result of this
world disaster." So said President Franklin Delano Roosevelt about World War II, and President
Harry Truman first made a name for himself as a Senator by crusading against war profiteering. The
same cannot be said about the current wartime situation, as war profiteering seems to be the trend
of the day according to the twelfth annual CEO compensation survey conducted by United for a Fair
Economy (UFE) and the Institute for
Policy Studies (IPS).
The report, which surveys
367 leading US corporations, focuses particularly on 34 of the top 100 defense contractors in 2004
with 10 percent or more of their revenues from defense contracts. It finds "a trend towards
individual war profiteering by CEOs," with CEO pay at these companies rising 200 percent from 2001
"As the death toll mounts among Americans and Iraqis, it seems particularly
unjust to see executives profiting personally from the horrors of war," states the report, written
by UFE's Scott Klinger and Liz Stanton and IPS's Sarah Anderson and John Cavanagh.
report spotlights several individual defense contractor CEOs to illustrate the perversity of their
personal wealth-enhancement. Bulletproof vest maker DHB Industries (ticker: DHB) CEO David Brooks pay rose a
staggering 3,349 percent from 2001 when it stood at $525,000 to 2004 when it reached $70 million.
In addition, last year Mr. Brooks sold company stock worth about $186 million, triggering a stock
plummet from above $22 to under $7.
"In May of this year, the Marine Corps recalled 5,277
DHB Interceptor armored vests after questions were raised about the vests' ability to stop 9-mm
pistol rounds," states the report. "By that time, of course, Brooks had pocketed $250 million-plus
in war windfalls."
"Defenders of sky-high CEO pay often argue that such compensation
levels are justified because corporate leaders bear tremendous responsibilities and must oversee
complicated business activities," states the report before comparing defense CEO pay to that of
military generals. "Although the military leaders are responsible for the lives of thousands of
personnel and command highly complex operations, they receive only a tiny fraction of typical
defense contractor pay."
The ratio between median pay for defense contractor CEOs to
military generals with 20 years experience nearly doubled since the September 11 tragedy that set
the so-called "War on Terror" in motion, rising to 23-to-1 ($3.9 million compared to $168,509), up
from 12-to-1 in 2001.
Stepping back to look at across-the-board comparisons, the ratio
of average total compensation for all 367 CEOs ($11.8 million) to average production worker pay
($27,460) is 431-to-1 in 2004, up from 301-to-1 last year.
"While this is still smaller
than the 2000 peak of 525-to-1, it is more than 10 times as large as the 1982 ratio of 42-to-1,"
states the report.
The report also takes stock of CEO pay trends over the past dozen
years, identifying five predominant trends such as pension underfunders, tax dodgers, book cookers,
and stock tankers. The report also inducted CEOs representative of these trends into a "Hall of
Shame." For example, in 1999 Computer Associates (CA) CEO Charles Wang earned $655
million, his share of a $1.1 billion stock bonus shared among the company's three top officers; the
next year, questions about the company's accounting practices precipitated a collapse in its stock
price of 72 percent.
This exemplifies a trend documented by the report by comparing S&P 500 returns since 1990 of a $10,000 initial investment
to those of an equal portfolio invested every year in the company of the highest-paid CEO. The
former portfolio would have risen to $48,350 by the end of 2004, six times the returns of the
"Greedy CEO" portfolio, which would have fallen to $8,079. So much for "pay for
Counterbalancing these negative examples are a few positive examples, such
as Whole Foods Market (WFMI) CEO John Mackey, whose pay is
limited to no more than 14 times the pay of the company's average employee. Best Buy (BBY) CEO Brad
Anderson gave 200,000 stock options to outstanding non-executive employees in 2003.
"Foregoing the grant worth $7.5 million sent the message that Andersonís $3.2 million salary
and bonus were enough and the contributions of others were critical to the companyís success," the
These cases exemplify the report's recommendation of voluntary corporate
action to address CEO pay disparity. Other recommendations include Congressional action, such as
freezing pay levels for executives of companies receiving wartime defense contracts and other
war-related contracts such as for Iraq reconstruction. Another recommendation is for the
Securities and Exchange Commission (SEC) to
foster competitive corporate board elections and increase shareholder participation in governance
of executive compensation.