Ending Million-Dollar Pay Packages, Papal-Style

Let the Pope’s suspension of a bishop for spending millions on lavish renovations be a lesson to America’s CEOs.

Leo Gerard, United Steelworkers President October 29, 2013

Pope Francis meets with followers at St. Peter's Square. (Creative Commons/Wikimedia)

Pope Fran­cis has the anti­dote for what ails the Unit­ed States. He gave the Catholic Church’s 1.2 bil­lion fol­low­ers a dose last week when he sus­pend­ed the Bish­op of Bling.

Corporate boards should behave more like Pope Francis, banishing imperial CEOs and rejecting royal pay package demands. If they did, they wouldn’t have to fear embarrassment when those pay ratio numbers get released.

The Ger­man bish­op, Franz-Peter Tebartz-van Elst, bought him­self a $20,000 bath­tub while spend­ing $42 mil­lion ren­o­vat­ing his res­i­dence. It’s an echo of John Thain, the Mer­rill Lynch chief exec­u­tive who bought a $35,000 toi­let while spend­ing $1.2 mil­lion on office ren­o­va­tions just months before con­fess­ing to $56 bil­lion in losses.

Unlike Elst and Thain, Pope Fran­cis is beloved for his asceti­cism. He lives in Spar­tan rooms and dri­ves a 1984 Renault. He runs an orga­ni­za­tion as big as any Amer­i­can cor­po­ra­tion. Yet he doesn’t demand mil­lions in pay and perks. Amer­i­can CEOs, by con­trast, place them­selves on $35,000 thrones bought with the sweat of strug­gling min­i­mum wage work­ers. The income inequal­i­ty they’ve caused over the past half cen­tu­ry is cor­ro­sive to the Amer­i­can ide­al of an egal­i­tar­i­an soci­ety free of grotesque­ly wealthy roy­al­ty. It’s poi­son­ing the cher­ished con­cept that any Amer­i­can who works hard and fol­lows the rules can make it.

The Catholic Church is not with­out sin. Sex abuse scan­dals and cov­er-ups have rocked the faith of the devout. But Pope Fran­cis seems to be uplift­ing the church, return­ing it spir­i­tu­al­ly to the days when its leader min­is­tered to the poor, healed lep­ers and expelled mon­ey chang­ers from the tem­ple. Pope Fran­cis sets the exam­ple, wear­ing plain loafers instead of the hand­made red leather slip­pers of his pre­de­ces­sor and tak­ing the name of the medieval saint known in Italy as the poverel­lo or lit­tle poor man. Sus­pend­ing the Bish­op of Bling sug­gests Pope Fran­cis won’t tol­er­ate impe­r­i­al behav­ior by sub­or­di­nates either.

Amer­i­can CEOs and boards of direc­tors should take note. The income inequal­i­ty they’ve fos­tered with out­sized CEO pay pack­ages and pal­try wages for work­ers is cre­at­ing an Amer­i­can roy­al class served by serfs. Instead of fix­ing that prob­lem as Pope Fran­cis is, they’re try­ing to con­ceal it.

The num­bers are stag­ger­ing. Bloomberg cal­cu­lates the aver­age CEO of a Stan­dard & Poor’s 500 Index cor­po­ra­tion gets 204 times what the typ­i­cal work­er receives. In oth­er words, if the medi­an work­er earns $30,000, the CEO is pulling down $6,120,000 – yeah, more than $6 million.

Some of the dis­par­i­ties are way worse. Take Ronald Johnson’s pay pack­age, for exam­ple. The for­mer CEO of JC Pen­ney Co. got $53.3 mil­lion last year. The aver­age JC Pen­ney work­er got $29,688, Bloomberg fig­ured using gov­ern­ment aver­ages for depart­ment store wages.

That’s a ratio of 1,795 to 1. It means the JC Pen­ney board of direc­tors decid­ed that John­son was worth 1,795 times the aver­age Penney’s work­er. Or, to put it anoth­er way, the JC Pen­ney board deter­mined that it would take 1,795 Penney’s work­ers to equal the tal­ent of one Ronald John­son, a guy whose lead­er­ship result­ed in a dis­as­trous, mon­ey-los­ing 25 per­cent drop in sales. The board boot­ed their $53 mil­lion man with­in 18 months.

Johnson’s super-paid poor per­for­mance is typ­i­cal. The Insti­tute for Pol­i­cy Stud­ies reviewed the accom­plish­ments of 241 cor­po­rate chief exec­u­tives who ranked among America’s 25 top-paid CEOS in one or more of the past 20 years and found near­ly 40 per­cent were bailed out by tax­pay­ers, bust­ed for fraud or boot­ed like John­son of Penney’s and Thain, of over-priced toi­let fame.

CEO com­pen­sa­tion con­tin­ues to sky­rock­et while rank-and-file work­er pay stag­nates. Bloomberg deter­mined that the ratio between CEO and work­er wages rose 20 per­cent since 2009, mean­ing the guy at the top kept get­ting more while work­ers’ pay went nowhere. This has been the pat­tern for half a cen­tu­ry in the Unit­ed States, where these ratios are much high­er than they are in Europe. In Nor­way, for exam­ple, it’s 58-to‑1. In the 1950s, aca­d­e­mics put the U.S. fig­ure at 20-to‑1. It rose rapid­ly since then, mean­ing exec­u­tives got more and more in rela­tion­ship to work­ers: increas­ing to 42-to‑1 in 1980, then up to 120-to‑1 in 2000.

The exces­sive pay and stock bonus­es that exec­u­tives get don’t nec­es­sar­i­ly trans­late to good deci­sions for share­hold­ers, work­ers or com­mu­ni­ties as CEOs strive to per­son­al­ly ben­e­fit from short-term gains instead of long-term invest­ments. British econ­o­mist Andrew Smithers fig­ures that in the 1970s, Amer­i­can com­pa­nies devot­ed to invest­ments 15 times as much cap­i­tal as they dis­trib­uted to share­hold­ers. Now it’s less than 2 to 1. Today, CEOs suck out com­pa­nies’ val­ue rather than build­ing for the future.

Fed­er­al law has long required cor­po­ra­tions to reveal CEO pay, but it did not man­date that cor­po­ra­tions deter­mine the wages of their typ­i­cal work­ers and pub­lish that too. The Dodd-Frank Wall Street Reform and Con­sumer Pro­tec­tion Act is sup­posed to change that. It requires pub­lic com­pa­nies to report the ratio between the CEO’s pack­age and the pay of the medi­an worker.

Final­ly, after a three-year delay, the Secu­ri­ties and Exchange Com­mis­sion last month pro­posed reg­u­la­tions for dis­close of this infor­ma­tion. CEOs and their lob­by­ists imme­di­ate­ly redou­bled their efforts to scut­tle this requirement.

They real­ize it’s demor­al­iz­ing for work­ers to dis­cov­er that their corporation’s CEO took $96 mil­lion out of the com­pa­ny, as Oracle’s Lawrence Elli­son did last year. But they know it’s worse, it’s actu­al­ly demean­ing to employ­ees when the board of direc­tors awards the CEO 1,287 times what it pays the typ­i­cal work­er for his labor and devo­tion to the com­pa­ny. That 1,287-to‑1 fig­ure is Bloomberg’s esti­mate for the CEO-to-work­er pay ratio at Oracle.

CEOs and board mem­bers don’t want work­ers to get that pay ratio infor­ma­tion. They don’t want work­ers to feel degrad­ed, and thus a lit­tle less devot­ed. And they don’t want to be humil­i­at­ed by shock­ing ratios at com­pa­nies like JC Pen­ney where the CEO’s deci­sions dam­aged the corporation.

But a lit­tle mor­ti­fi­ca­tion can get good results – like removal of the Bish­op of Bling. The SEC should ignore cor­po­rate protests about the pay report­ing requirements.

And cor­po­rate boards should behave more like Pope Fran­cis, ban­ish­ing impe­r­i­al CEOs and reject­ing roy­al pay pack­age demands. If they did, they wouldn’t have to fear embar­rass­ment when those pay ratio num­bers get released.

Leo Ger­ard is inter­na­tion­al pres­i­dent of the Unit­ed Steel­work­ers Union, part of the AFL-CIO. The son of a union min­er; Ger­ard start­ed work­ing at a nick­el smelter in Sud­bury, Ontario, at age 18, and rose through the union’s ranks to be appoint­ed the sev­enth inter­na­tion­al pres­i­dent Feb. 28, 2001. For more infor­ma­tion about Ger­ard, vis­it usw​.org.
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