Den of thieves

Greedy CEOs like Bank of America's Hugh McColl are squeezing the shareholders for gigantic salaries, no matter how the company is doing.

Published March 23, 2000 5:00PM (EST)

If size is your thing, just flip through the proxy statements of publicly traded companies that will be arriving in mailboxes over the next month or so. The releases provide shareholders with a fleeting glimpse into the surreal world of executive compensation -- where company boards never let tanking stock prices, paltry earnings or massive worker layoffs get in the way of hefty raises and bonuses. CEO paychecks are swelling like never before.

And this year's Oscar for the most undeserved Titanic-size raise goes to Hugh McColl, the 64-year-old chief executive of Bank of America. According to the company's just released proxy, McColl pulled down a compensation package worth nearly $50 million for his 1999 performance, which reached its nadir with the layoff of nearly 20,000 employees.

The Charlotte, N.C., company was quick to point out that the bulk of the package consists of stock options, which aren't worth much in the short term, since Bank of America's stock price has fallen by a third in the past year. Why? Despite wholesale layoffs, profits from the merger between San Francisco's Bank of America and NationsBank have fallen below expectations.

But don't weep for Hugh. Presuming the stock posts even modest returns over the next 10 years, he will eventually reap the bulk of his reward.

McColl isn't alone in his ability to turn a disappointing year into a winning pay proposition. As the Wall Street Journal opined in its 1999 review of executive compensation, "Pay for performance? Forget it. These days, CEOs are assured of getting rich -- however the company does."

In Boston, last year's merger of Fleet Bank and BankBoston was a financial bonanza for executives at both firms, if not for average employees and stockholders. A proxy filed last week showed CEO Terrence Murray of the combined FleetBoston Financial Corp. raked in $20.2 million last year in pay, bonus and stock options. President Charles Gifford got a cool $15.6 million, though he is reportedly giving most of that to an unnamed charity.

And there won't be any shortage of charity cases in the Boston area seeking his largess: The day before filing the proxy, the company waved goodbye to 4,000 workers -- about 7 percent of its workforce. Since the merger, FleetBoston's stock has fallen over 20 percent.

Much like the current stock market, executive pay is no longer based on traditional benchmarks of value or equity. Historically, chief executive pay often reflected a reasonable ratio to that of average workers. In 1960, for instance, that ratio stood around 40 to 1; and by the end of the go-go 1960s, it had risen to about 80 to 1. Though the downbeat 1970s knocked the ratio back to 40 to 1, the chief executive pay ratio soared during the "Me" Decade of the 1980s, peaking at 85 to 1.

While Michael Milken's $600 million one-time haul in 1986 is still an eyepopper, his 1980s peers were pikers compared with today's corporate paymeisters. By 1998, according to Business Week, the average CEO compensation package, including bonuses and stock options, had multiplied to 419 times the average worker's paycheck.

And if, when that information is disclosed this month, the 1999 increases are comparable to the 28.5 percent hike of 1998, that figure will reach 538 to 1 by the time this proxy season is over. To see today's executive compensation packages, you would think the Dow was already trading at 36,000.

Disney CEO Michael Eisner's salary history was typical of the bloating that occurred during the 1990s. In 1988, Eisner earned $40 million from the show-business giant and was the highest-paid executive in the land. By 1998, he was pulling down $576 million a year.

As Bob Dole once famously asked, "Where's the outrage?" For the 50 percent of Americans who own stock, no matter how small their holdings, the gains of the late 1990s have been nothing to sneeze at, and there has been barely a murmur of complaint about exorbitant executive pay. And among the half that has no stock at all, wages for most have been rising faster than inflation. So, who's left to complain?

Graef Crystal, for one. The one-time compensation consultant became so disgusted with executive greed that he now regularly hurls broadsides against his former clients. In a recent Bloomberg column, Crystal pointed out that even General Electric's Jack Welch -- who has arguably done as much for his stockholders since 1981 as any CEO in the land -- had lifted his salary and bonus in the 1990s at a rate (45 percent a year) higher than the return on G.E.'s stock (32.2 percent). And that figure doesn't even count the $800 million in stock options he received.

The problem, Crystal argues, is what you might call the "Welch effect." Other Fortune 500 companies feel they must compensate their executives at the peer group average, which gets lifted to obscene heights by the likes of Welch. "That those other CEOs are running smaller and much less successful companies is conveniently overlooked," he wrote.

Smaller and less successful is a good way of describing Raytheon, the defense contractor with plans, approval pending, to produce the Clinton administration's scaled-down, and probably unworkable, Star Wars anti-missile defense system this summer. The company slashed 14,000 jobs in 1998 and an additional 3,800 last year. Raytheon's stock plunged from a 52-week high of $72 to $22 last Friday.

But a stock that's fallen like a failed test missile hasn't done much damage to company chairman Dennis Picard's paycheck. In 1998, Picard raked in a combined salary, bonus and stock option package worth $9.5 million, up from $7.7 million the previous year.

But the latest and, arguably most absurd, chapter in executive excess is now being written in the dot-com world. In its latest issue, Forbes hails the arrival of the $100 million CEO. Like No. 1 basketball draft choices who pull down multiyear, multimillion-dollar contracts, these are second- or third-ranking executives at established companies who are being lured in the hopes that they will parlay their management accomplishments at blue-chip brands into start-up success. According to Forbes, at least three dot-com executives have received $1 billion compensation packages: George Conrades of Akamai Technologies ($1.8 billion), Richard Braddock of ($1.1 billion) and Margaret Whitman of eBay ($1 billion).

Of course, the $100 million CEO is a paper phenomenon -- built on stock options and equity stakes that may turn out to be worthless. But as the New Economy continues to grow, it's certain that at least some of these pay packages will set a new standard for jackpots in the casino society of today's business world.

Where will it stop? Each year, shareholder activist groups like United for a Fair Economy file resolutions seeking to cap executive pay. And bills currently under review in Congress would limit corporate deductions for bonuses and stock options -- legislation that extends an existing law limiting salary deductions to $1 million.

But let's get real. The bills and resolutions have no chance of passing -- at least not as long as the most popular show in television remains "Who Wants to Be a Millionaire."

By Merrill Goozner

Merrill Goozner is chief economics correspondent in the Chicago Tribune's Washington bureau.

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