Wednesday, September 18, 2013

SEC, finally, does something about insane CEO pay

You know something's out of whack when McKesson CEO John Hammergren rakes in $51.7 million even though the company has paid nearly a $1 billion to settle Medicaid and other fraud claims on his watch. While he’s entitled to a $159 million pension, other McKesson workers can’t even afford to participate in their 401 (k) or buy into the company’s healthcare plan.

On $13 an hour, Randolph Santiago, a material handler at McKesson's Lakeland, Fla., facility, can't come up with $160 a month for individual health coverage, let alone the higher cost of a family plan. His wife is on SSI after being diagnosed with clinical depression. His two daughters need braces, but at $8,500, they're beyond him.

Hammergren makes 847 times the average worker at McKesson -- if you include his stock options and pension. That's so much that he receives an extra $17,000 for a financial planner just to count all his money.

It's time to do something about the growing gap between the one percenters at the top of corporations and the 99 percent who work for them. Fortunately, the Securities and Exchange Commission is doing something.

The SEC today proposed a rule requiring corporations to reveal the ratio between their CEO and median worker compensation. As one commissioner complained, the reason for doing it is to shame CEOs. (He thinks there's something wrong with that.)

Congress passed a law in July 2010 that requires companies to disclose the gap between CEO and worker pay. Expect corporations to fight back. It’s not just the general public who’s fed up, investors care too. In fact, Hammergren’s compensation package received a stunning 78 percent rejection by shareholders at McKesson’s annual meeting this year.

Teamsters General President Jim Hoffa, in a statement, praised the SEC:
CEO pay keeps going up and worker pay keeps going down. This is a dirty secret that corporate CEOs don’t want exposed, and the SEC did the right thing by proposing this rule.
The Institute for Policy Studies reports:
Expert observers of the corporate compensation scene have been calling for action around CEO-worker pay ratios ever since Peter Drucker, the founder of modern management science, called for a 25-to-1 ratio between top management and worker pay in a 1977 Wall Street Journal op-ed.

Back at that time pay ratios of 50- and 100-to-1 struck the American public — and experts like Drucker — as totally unjustifiable. Ratios that wide, Drucker wrote, endanger the great business achievement of the 20th century, “the steady narrowing of the income gap between the ‘big boss’ and the ‘working man.'”

That achievement has now gone completely by the boards. Over recent decades, the CEO-worker pay gap has soared. Major corporate CEOs last year took in 354 times more compensation than average American workers, double the gap in the early 1990s. A Bloomberg News survey this past spring found that CEOs at eight major U.S. corporations were making over 1,000 times the average pay of workers in their industry.
The IPS says pay ratio disclosure could be a game-changer in the struggle against insane executive compensation.

Let's hope.