Industrial Labor Relations

Executive Pay: Under Attack

Abstract

Chief Executive Officers (CEOs) of a company provide essential leadership to the entire business. Basic components of executive compensation include a combination of: salary, bonus, perquisites, personal benefits, stock, and stock options.

Current executive compensation legislation includes: Equal Pay Act of 1963, Sarbanes-Oxley Act of 2002, the FAS 123R, and the recent Securities and Exchange Commission rules requiring companies to disclose more information regarding the executive perquisites, stock options and future pension benefits of their top executives. In November 2005, a new law, The Protection Against Executive Compensation Abuse Act (TPAECAA) was introduced.

In light of recent corporate scandals and the collapse of companies, the public has renewed their scrutiny of the excesses of CEO compensation. An examination of the abuses including: greed, realities of the activities of the board of directors, current legislation and tax policies, and outsourcing yield few conclusions. Despite all the rhetoric and legislative initiatives, most experts believe that executives in the future will not be paid less, just differently.

Executive Pay: Under Attack

The words, �executive compensation’, generate great controversy in the United States and all around the world. Newspapers, magazines, radio, television and internet sites abound with titles that tout �Executive Excess’; �Paychecks on Steroids’; �The Madness of Executive Compensation’; �When the Boss Gets Paid Too Much’.

Recent concern about how and how much CEOs make is not a new phenomena. Throughout U.S. business history, corporate paydays have drawn fire and criticism. (Appendix A). Unlike past irregularities, however, the current outrage focuses on criminal and quasi-criminal CEO schemes to defraud investors, employees and the U. S. government alike. The uproar is deafening. Significant steps to curb these abuses are currently being proposed by the government, unions, investors and individual citizens.

The purpose of this paper will be to: 1) briefly examine the role of CEO in Corporate America, 2) explore the components of executive compensation, 3) delineate the current key CEO pay issues, 4) outline any applicable compensation laws, and 5) investigate the pending legislative efforts to prevent future corporate compensation abuses.

CEOs

As the highest ranking officer, the CEO or chief executive officer may have a wide range of titles—such as chief operating officer, board chair, president, vice president, school superintendent, county administrator or commissioner. All of these individuals are responsible for formulating policies and directing “the operations of businesses and corporations, public sector organizations, nonprofit institutions and other organizations” (www.bls.gov/oco012.htm).

The CEO’s primary responsibility is to implement the strategic plans and policies of the board of directors. In this complex and demanding position, CEOs have many roles including: leading the organization, directing day-to-day operations, hiring and firing at the senior level and informing the board about significant issues. While these responsibilities vary according to the size of the organization, one key responsibility does not change: the CEO is ultimately responsible for the success of the organization.

According to the Bureau of Labor Statistics, in 2004, there were 2.3 million top executives in the U. S. Competition for these jobs is intense due to the prestige and monetary rewards of the position. Seen as a growth sector, the BLS anticipates continued job opportunities due to the nature of the work. These “jobs are unlikely to be automated or eliminated through corporate restructuring---trends that are expected to adversely affect employment of lower-level managers” (www.bls.gov/oco012.htm).

While the media sensationalizes CEO’s salaries (Appendix B), the BLS tells a different story. In 2004, median annual earning of general and operations managers were $77,430. The middle 50 percent earned between $52,420 and $119,310. Median annual earnings of chief executives were $140,350. In “a 2005 survey by Abbott, Langer and Associates, the