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Friday, November 18, 2011

Occupy the Remuneration Committee

(chart from Barry Ritholtz)

(click image to read source)

As their employees' average earnings have gone down from $31,991 (in 1964) to $28,305 (in 2005), corporate executives have seen their median compensation go up from $822,000 to $4.9 million.

What have the executives done to earn what they did? Increase stock prices? Drive sales? Add value to the corporation?

In many cases, they did nothing: their compensation was decided on by looking at what other executives were making:

As the board of Amgen convened at the company’s headquarters in March, chief executive Kevin W. Sharer seemed an unlikely candidate for a raise.

Shareholders at the company, one of the nation’s largest biotech firms, had lost 3 percent on their investment in 2010 and 7 percent over the past five years. The company had been forced to close or shrink plants, trimming the workforce from 20,100 to 17,400. And Sharer, a 63-year-old former Navy engineer, was already earning lots of money — about $15 million in the previous year, plus such perks as two corporate jets.

The board decided to give Sharer more. It boosted his compensation to $21 million annually, a 37 percent increase, according to the company reports.

Why?

The company board agreed to pay Sharer more than most chief executives in the industry — with a compensation "value closer to the 75th percentile of the peer group," according to a 2011 regulatory filing.

This is how it's done in corporate America. At Amgen and at the vast majority of large U.S. companies, boards aim to pay their executives at levels equal to or above the median for executives at similar companies.

This situation isn't new: the Washington Post article above links to a related piece from 2002.

Occupy the Boardroom is a good place to start, but Occupying executive remuneration committees would be better.

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1 comment:

  1. Procter & Gamble also gave their CEO BOB Mc Donald a 23% raise this year and yet the employee's (at least the Sacramento Plant) cannot even get a 3% cost of living.

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