[PEN-L:30403] US: NY Fed Calls For CEO Pay Cuts

[Sabri Oncu <soncu@xxxxxxxxxxx>]

September 20:  US - NY Fed Calls For CEO Pay Cuts
Location: New York
Author: Tim Jones, RiskCenter Correspondent
Date: Friday, September 20, 2002

New York Federal Reserve President William McDonough has called
on US corporate executives to take pay cuts, saying their salary
packages are bloated and morally hard to justify.
"Beginning with the strongest companies, CEOs and their boards
should simply reach the conclusion that executive pay is
excessive and adjust it to more reasonable and justifiable
levels," McDonough said. "Should there not be both economic and
moral limitations on the gaps created by the market-driven reward
system?" McDonough asked in a speech to mark the Sept. 11
attacks.

His remarks were the strongest denunciation yet by any public
official of chief executive pay, which McDonough said has swollen
in publicly traded companies to 400 times that of production
workers on average from 42 times two decades ago. "It's
noteworthy that somebody in that position -- with an emphasis on
the free markets -- would be suggesting that there ought to be
some limits," said Carol Bowie, director of governance research
at theInvestor Responsibility Research Center .

In recent months, stunning corporate excess during the boom years
of the late 1990s has fueled investor outrage as share prices
have collapsed but executives walked away with huge riches from
stock options, corporate perks and loans.

Tyco International Ltd. ex-CEO Dennis Kozlowski, indicated for
sales tax fraud, reportedly funded a lavish lifestyle with $135
million in corporate loans. Just last week, court papers showed
that former General Electric Co. chief Jack Welch, who earned
$16.5 million annually, still lives large in a GE-financed
apartment overlooking New York's Central Park and has access to a
corporate jet and country club memberships.

CEO compensation exploded during the late 1980s and then during
the long economic boom of the 1990s. Much of the rise in CEO pay
packages in the last decade was tied to the frenetic growth in
stock options, which companies began doling out freely in a bid
to attract top talent.

In the last five years alone, CEO compensation has doubled. In
1996, the average CEO at the 200 largest companies made about
$5.8 million, according to compensation consultants Pearl Meyer &
Partners. By 2001, that figure jumped to $11.7 million.

For his part, McDonough earns a comparatively moderate $297,005,
while Federal Reserve Chairman Alan Greenspan made about $136,000
last year. The New York Fed president said voluntary pay cuts,
starting with the best companies, will benefit shareholders and
strengthen the United States ' market economy.

"We must recognize that the leadership of the American economy
has made a large number of American citizens, and countless more
around the world, question our judgement and/or our ethics,"
McDonough said. In particular, the inflated levels of executive
pay require corrective action, he said.

"It is hard to find somebody more convinced than I of the
superiority of the American economic system, but I can find
nothing in economic theory that justifies this development,"
McDonough said. With the benefit of hindsight, the policy of
vastly increasing executive compensation was also "terribly bad
social policy and perhaps even bad morals," the central banker
said.

He urged executives to voluntarily trim their pay packages to
more reasonable levels, saying government regulations were a
blunt instrument. "CEOs are terribly overpaid, it's been
destructive to workers' morale, and it's been destructive in the
economy as a whole," said a member of the congregation who
listened to McDonough's remarks, Nancy Barsotti, an interior
designer.

No one on Wall Street or in Washington has publicly taken such a
strong stand.

Article at:
http://www.riskcenter.com/cgi-bin/article.pl?id=5480