CEOs at companies that outsource the most U.S. jobs are rewarded with bigger paychecks, according to a new report, "Executive Excess 2004: Campaign Contributions, Outsourcing, Unexpensed Stock Options and Rising CEO Pay."
Average CEO compensation at the 50 firms outsourcing the most service jobs increased by 46 percent in 2003, compared to a 9 percent average increase for all CEOs at the 365 large companies surveyed by Business Week. Top outsourcers earned an average of $10.4 million in 2003, 28 percent more than the average CEO compensation of $8.1 million. From 2001 to 2003, the top 50 outsourcing CEOs earned $2.2 billion while sending an estimated 200,000 jobs overseas.
Political contributions also appear to pay off. CEOs of the 69 companies that sponsored this summer's Democratic and Republican National Conventions saw their pay jump 52 percent in 2003, far outpacing the 9 percent raise for the average large company CEO. Similarly, the 38 CEOs who have personally raised at least $100,000 for either the Bush or Kerry presidential campaigns earned an average of $15.2 million in 2003, 88 percent more than the average large company CEO.
One sign of the political clout of corporate leaders is the current effort in Congress to block new rules that would require corporations to report all stock option grants as expenses in their financial statements. Current accounting rules have encouraged lavish options grants to executives. The report calculates that corporations have claimed an estimated $3.9 billion in tax deductions related to stock options exercised by 350 leading CEOs since 1997.
After two years of narrowing, the CEO-to-worker wage gap, that rift is rising again. The CEO pay to worker pay ratio reached 301:1 in 2003, up from 282:1 in 2002. If the minimum wage had increased as quickly as CEO pay since 1990, it would today be $15.76 per hour, rather than the current $5.15 per hour.
One rationale for high CEO pay is that CEOs bear tremendous risks and responsibilities for their companies, yet the report found that CEOs are far more financially secure than those risking their lives in war. Average CEO pay is 56 times more than the pay for a U.S. Army general with 20 years experience ($144,932) and 634 times more than the pay for a starting U.S. soldier ($12,776).
The good news is that public pressure is beginning to have an impact. More investors than ever have demanded greater accountability from CEOs at shareholder meetings. Richard Grasso, CEO of the New York Stock Exchange, was forced to resign due to public outrage over his $140 million pay package. A number of companies and CEOs, including seven detailed in the report, have voluntarily supported fairer pay plans.
The report also includes recommendations on how tax and corporate governance regulations could be reformed to help narrow the pay gap.
"Executive Excess 2004" profiles the CEO pay practices and political contributions for the 15 companies that outsourced the most US service jobs: United Technologies, Citigroup, Oracle, Bank of America, Cognizant Technology Solutions, Morgan Stanley, Intuit, SBC Communications, Conseco, JP Morgan Chase, Sprint, Bank of New York, Time Warner, General Electric, and American Express.
Bank of America, for example, cut nearly 5,000 US jobs while outsourcing up to 1,100 jobs to India in 2003. In July 2004, the firm announced that it planned to cut another 12,500 U.S. jobs in the next two years. Meanwhile, CEO Kenneth Lewis received $37.9 million in compensation in 2003, nearly 110 percent more than in 2002. Bank of America's PAC has made $576,319 in contributions in the 2003-2004 election cycle.
The outsourcing of service jobs to low-wage countries has further widened the pay gap between workers and their bosses. Currently, the pay gap between U.S. CEOs and American call center workers is 400:1, while the gap between U.S. CEOs and Indian call center workers is 3,348:1.
Authored by Sarah Anderson, John Cavanagh, Chris Hartman, Scott Klinger, and Stacey Chan, "Executive Excess 2004" is the eleventh annual CEO pay study by the Institute for Policy Studies and United for a Fair Economy.