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. Last Updated: 07/27/2016

Critics Slam Growing U.S. Exec Salaries

LOS ANGELES -- As a leading manufacturer in the unglamorous chemical business, Monsanto Co. would never fit anyone's model of the corporate bomb-thrower. But when the St. Louis, Missouri-based company this year unveiled its pay program for top executives, the business world gasped.


It wasn't that Chief Executive Robert Shapiro -- whose salary and cash bonus totaled nearly $2 million in 1995 -- stands to make millions more from stock options if the company does well.


What got everyone's attention is that if Monsanto turns in a sub-par performance over the next five years, Shapiro and 29 other top executives may end up owing the company money.


"This is really changing the dynamics by which business is being run," said Teri McCaslin, Monsanto's corporate vice president for human resources and an architect of the plan, which requires top executives to take out a company loan to buy Monsanto stock. If the stock does not significantly outperform most industrial companies in the next five years, they risk having to pay back the loan out of their own pockets.


Monsanto's plan represents one of the first signs that corporate boards are beginning to consider ways to rein in what has been explosive -- and in some cases embarrassing -- growth in top executive salaries.


But while the program has earned widespread praise in some quarters, there are few signs that it will be widely copied soon. Although top U.S executives are the best paid in the world, initiatives like Monsanto's that are designed to add a measure of risk to their lush rewards are still shunned by nearly all of corporate America.


In fact, the pay of top U.S. corporate managers continues to grow so fast that it has become an economic and political cause c?l?bre. That's in part a side effect of the bull market, which has given the stock options in executive pay packages an extra jolt. It's also an unintended consequence of the movement in the 1980s to link executive pay more closely to corporate performance.


To many observers, it is only right that top executives of major U.S. companies should lead the world in pay. The United States' companies are among the most competitive, its stock market the most buoyant.


Moreover, with boards of directors more willing than before to fire under-performing managers, "the risk of the CEO job has increased substantially," said Richard Semler, director of the executive pay and performance practice at the Princeton consulting firm of Sibson & Associates.


But critics argue that recent gains enjoyed by the brass often have more to do with such factors as the burgeoning value of their stock options -- a reflection of overall bull-market euphoria more than individual accomplishment.


Others point to the clubby atmosphere within corporate boards' compensation committees, which set pay for top management. These are generally comprised of directors who come from outside the company but who are almost always current or former top corporate executives themselves.


That the spotlight is now on executive compensation is understandable. One reason is that this is a presidential election year, when perennial concerns about the fairness of the U.S. economic system get a boost from the rhetorical windstorms of partisan politics.


However, this year's executive raises also come during a period of brutal downsizing -- with some of the biggest raises going to the chief executive officers with the sharpest hatchets.


Compounding the turmoil is a stagnation in the American worker's hourly pay, which rose an average of 1 percent last year while chief executive officers at major corporations got raises that averaged 20 percent -- to an average new compensation total of about $4.5 million. The growth rate at the top handily outstripped not only inflation, but the growth of corporate profits themselves.


Last year's figures continue a long-term trend. According to the AFL-CIO, the average CEO makes 187 times the wage of the average factory worker, up from a spread of 41-to-1 in 1960.


"Jackpot compensation awards are coming just as the earnings potential and job security of the average working person seem weaker than at any time in the past 40 years," said Margaret Blair, a corporate-affairs expert at the Brookings Institution.


The result is that the executive pay issue is a lightning rod for public discontent with many features of the economy and an all-purpose argument for initiatives aimed at sharing the wealth.


Just last week White House Chief of Staff Leon Panetta deflected Republican grumbling about proposals to hike the minimum wage by noting: "When CEOs in this country ... had their salaries double, I didn't hear a lot of complaints. We're now talking about a lousy 90 cents increase on the minimum wage."


Others argue that the unrestrained surge in executive pay has made a mockery of any representations that compensation is linked to executive performance.


Consider AT&T Chairman and Chief Executive Robert Allen, whose overall compensation in 1995 rose 139 percent to $16 million. That came in a year in which Allen ordered layoffs of as many as 40,000 AT&T employees -- at least partially to help the company recover from failed strategies for which he was responsible.