According to Business Week, the average CEO made 42 times the average hourly worker's pay in 1980, 85 times in 1990, and a whopping 531 times in 2000. As stock prices dropped in 2001 you would think that executive compensation would too, right? WRONG! Experts suggest the true way to see if a salary is deserved is to look at the company performance. Well, I did and found some disturbing information. While workers face layoffs and benefit cuts, CEOs are protecting themselves from the same risks they ask their own workers to take. I found out that there were many companies whose performance should have left their CEO living in a cardboard box while selling pencils for a nickel in Penn Station to make a living (figuratively speaking!). Take the Coca-Cola for example. Their earnings lowered and their shares fell 23% and the board increased CEO Douglas Daft's salary by 18% to $1.5 million, his bonuses by 16% to $3.5 million, and his options grant from 650,000 shares to 1 million. He was the ninth highest-paid CEO with a total compensation package of $55 million. What's the reasoning behind this? Well, the board cited Daft's "highly effective leadership and vision in a uniquely complex marketplace." Real comforting. Other boards also found ways to reward executives in a bad year. AT&T recently announced that they were spending $1 billion in restructuring costs and had more than 10,000 job cuts while CEO Michael Armstrong received a $10 million minimum guarantee on his restricted stock. Hewlett-Packard recently had 15,000 jobs cut in a controversial merger with Compaq and executives received $337 million in retention bonuses. Lucent Technologies cut its workforce in half and froze workers" 401(k) plan as the stock plummeted while CEO Richard McGinn got a $5.5 million cash severance payment plus pension.
Many argue that CEO pay is a private market decision between the company board of directors and the individual that is offered the job.