CEO excess offends even wealthy

Affluent Americans believe their corporate chiefs are overpaid - 84 per cent said so in a recent poll.

And the number of such Americans - whose incomes exceed US$100,000 ($163,900) - is growing, up 3 per cent from 81 per cent a month earlier in the Bloomberg poll.

The results show concerns over chief executives' compensation, voiced by critics such as billionaire investor Warren Buffett, are resonating with the public. A Harvard and Cornell Universities' study has found US public companies paid their top five executives the equivalent of more than 10 per cent of net income from 2001 to 2004, up from 4.8 per cent from 1993 to 1995.

"This is not a right-left, Republican-Democrat, man-woman, old-young issue," said Patrick McGurn, executive vice-president of Maryland-based Institutional Shareholder Services, the largest US proxy adviser to fund managers. "Everybody thinks, with some limited exceptions, that CEOs are overpaid, and because of that shareholders aren't getting adequate bang for their buck."

Philip Purcell, 62, was forced out as New York-based Morgan Stanley's chief executive last year after shares of the third-biggest US securities firm fell 40 per cent in five years, while those of its four biggest Wall Street rivals all rose. In his final year running the company, Purcell got a 47 per cent raise to US$22.5 million and received US$77.4 million in departure payments when he resigned.

Wall Street's best-paid chief executive last year was Henry Paulson, head of Goldman Sachs, the world's second-biggest securities firm. Paulson, 59, earned US$38.3 million in salary, stock and options. His compensation rose 28 per cent, while investors saw a total return of 24 per cent in stock appreciation and dividends.

Shareholders at Lucent Technologies complained in a proxy resolution last month that CEO Patricia Russo received share-based compensation worth more than US$33 million during her first three years, "yet Lucent's share price remains 55 per cent lower than the day she became CEO in 2002".

The dissidents won 54 per cent support for their non-binding resolution urging that executive pay be more closely tied with the performance of the New Jersey-based company, the biggest US maker of phone equipment.

The company defended Russo's share-based package as proof of "the close alignment of our long-term incentive programme with driving shareowner value".

"Too often, executive compensation in the US is ridiculously out of line with performance," Buffett, the world's second-richest man and chief executive of Berkshire Hathaway, said this month in his annual report to investors. "The upshot is that a mediocre-or-worse CEO - aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo - all too often receives gobs of money from an ill-designed compensation arrangement."

Buffett, 75, draws a US$100,000 salary running Nebraska-based Berkshire, whose US$137 billion market value ranks it 24th in the world.

CEO pay growth also is outpacing that of average workers. According to a report last August by the Institute for Policy Studies in Washington and Boston-based United for a Fair Economy, CEOs made 431 times the average production worker's pay in 2004, up from 107 times in 1990.


Out of line

* Patricia Russo, 58, received US$33 million in her first three years as CEO of Lucent Technologies in spite of the company's share price being 55 per cent lower than the day she took up that post. Dissident shareholders won majority support for a resolution urging that executive pay be more closely tied to performance.

* Philip Purcell, 62, was forced out as New York-based Morgan Stanley's CEO last year after its shares fell 40 per cent in five years. In his final year at the company, Purcell got a 47 per cent pay raise to US$22.5 million and then received a US$77.4 million golden handshake.

* Henry Paulson, 59, was Wall Street's best-paid CEO last year. The head of Goldman Sachs earned US$38.3 million in salary, stock and options. His package rose 28 per cent, while investors saw a total return of 24 per cent in stock appreciation and dividends.

- BLOOMBERG