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September 13, 2010
CEOs at Firms with Most Layoffs Earn More than the S&P 500 Average
    by Robert Kropp

A report from the Institute for Policy Studies finds pay disparity greatest at companies that have laid off the most employees.


The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July, contains several provisions addressing corporate governance, including one that provides for mandatory nonbinding shareowner votes on executive compensation. Another provision, sponsored by Senator Robert Menendez of New Jersey, requires companies to disclose the ratio between CEO compensation and the pay of an average employee.

According to a 2008 article in Business Week, "Chief executive officers at companies in the Standard & Poor’s 500-stock index earned more than $4,000 an hour each" in 2007. Citing Business Week as well as a September 2007 study of Fortune 500 firms showing that "top executives’ pay averaged $10.8 million the previous year, or more than 364 times the pay of the average US worker," members of the Interfaith Center on Corporate Responsibility (ICCR) submitted shareowner resolutions with a number of corporations in 2010, requesting disclosure of information relating to pay disparity.

Not unexpectedly, the provision has been met with resistance from corporate opponents, who claim its enactment would be a "logistical nightmare," and describe the information that would be disclosed as misleading. It is the responsibility of the Securities and Exchange Commission (SEC) to issue rules on the calculation of the total compensation of employees.

A recently published report from the
Institute for Policy Studies (IPS), entitled Executive Excess 2010: CEO Pay and the Great Recession, takes its analysis of pay disparity a step further, by finding that "CEOs of the 50 firms that have laid off the most workers since the onset of the economic crisis took home nearly $12 million on average in 2009, 42 percent more than the CEO pay average at S&P 500 firms as a whole."

Furthermore, the report continues, "The overwhelming majority of the layoff-leading firms — 72 percent — announced their mass layoffs at a time of positive earnings reports."

Fred Hassan, former CEO of Schering-Plough, earned nearly $50 million in 2009, at a time when his company laid off 16,000 workers when it merged with Merck. William Weldon of Johnson & Johnson earned $25.6 million while the company laid off 9,000 workers.

Even five CEOs of financial institutions that benefited from the TARP bailout made their way onto IPS's list of the top 50 "layoff leaders," with American Express CEO Kenneth Chenault leading with $16.8 million in pay. "American Express has laid off 4,000 employees since receiving $3.39 billion in TARP funding," according to the report.

The report ranks a number of reforms, both recently enacted and pending or promising, according to their effectiveness in limiting pay disparity. The Menendez provision in the financial reform bill is one highly rated reform, as well as a provision in the health care reform bill that limits the tax deductibility of health insurance executive pay.

Reforms that are currently pending include the Patriot Corporations Act, introduced by Representative Jan Schakowsky of Illinois in 2009, which would cap executive compensation at no more than 100 times the income of a company's lowest-paid worker.

According to the report, the most promising reform not yet before Congress would limit pay at recipients of bailout funds to no more than the salary of the US President, which is $400,000 at present.

 

 
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