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September 18, 2014
As You Sow Launches Shareowner Initiative on Executive Compensation
    by Robert Kropp

With the ratio of CEO to average employee pay at 300:1 and increasing, As You Sow announced an Executive Compensation initiative to encourage shareowners to link executive pay to meaningful performance goals.


The forces that brought the United States to oligarchic levels of wealth inequality are many, and that the system is rigged in favor of the richest one percent of Americans has only been made more plain in the years since the financial crisis: a meltdown of the global economy was brought about by the machinations of many of the wealthiest, but it is the rest of us who have suffered in its aftermath.

An analysis by economists Emmanuel Saez and Gabriel Zucman phrases the story of growing wealth inequality in a time frame beginning with the trickle-down myth of Reaganomics, and reveals a trend that has only grown worse since the financial crisis. “The richest 0.1 percent of the American population has rebuilt its share of wealth back to where it was in the Roaring Twenties,” Bloomberg reported in June. “And the richest 0.01 percent’s share has grown even more rapidly, quadrupling since the eve of the Reagan Revolution.”

During the period covered by the analysis, according to the Economic Policy Institute (EPI), “CEO compensation, inflation adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.”

“Policies that can potentially limit executive pay growth are changes in corporate governance, such as greater use of 'say on pay,' which allows a firm’s shareholders to vote on top executives’ compensation.” However, an early review of say on pay resolutions in 2014 indicates that most shareowners are doing little more than applying rubber stamps to management proposals.

In its recently announced Executive Compensation initiative, As You Sow states, “Over 300:1. That's the ratio of CEO to average employee pay in the United States. The U.S. leads the world in excessive executive compensation, to the detriment of shareholders. The current system of executive pay distorts incentives, exacerbates income inequality, and leads consumers and employees to think the game is rigged against them.”

The first shareowner resolution submitted by the organization under the initiative takes a slightly different track in addressing excessive executive compensation. The resolution, filed with Walgreens, does not directly address the growing inequality of CEO pay compared with that of employees. Instead, it seeks to “include sustainability as one of the performance measures for senior executives under the Company’s incentive plans.”

On the other hand, As You Sow indicates that its Executive Compensation initiative will address the issue of income inequality. The organization states that the aims of the initiative include:
1. Engaging shareholders and helping them hold money managers accountable for their votes;
2. Pushing companies to develop new social and environmental performance criteria, and working with them to do so;
3. Identifying the most overpaid executives, the money managers that approved the compensation plans, the consultants that proposed them, and the compensation committee board directors that approved their compensation packages; and
4. Encouraging foundations and public funds to adopt stringent voting guidelines to address specific disconnects between pay and performance, as well as the systemic issues that drive the increases, such as peer group selection and inflationary ratcheting up of compensation.

“Our goal,” As You Sow states, “is to help shareholders, including mutual funds, pensions, foundation, endowments, and individuals to create proactive change in a broken system.”

 

 
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