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Labor Day Report: CEOs Who Cooked the Books Earned 70% More |
Current rating: 0 |
by IPS/ UFE
(No verified email address) |
30 Aug 2002
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A recent IRS study shows that hocus-pocus accounting techniques allowed companies to report profits to shareholders that were 24% higher than the profits reported to the IRS. Profits reported to shareholders rose from $753 billion in 1996 to $817 billion in 1998, while corporate profits reported to the government declined over the same period from $660 billion to $658 billion. |
BOSTON - August 26 - CEOs of companies under investigation for accounting irregularities earned 70% more from 1999 to 2001 than the average CEO at large companies, according to a new report, "Executive Excess 2002: CEOs Cook the Books, Skewer the Rest of Us."
The CEOs of 23 large companies under investigation earned an average of $62 million from 1999 to 2001, compared with an average of $36 million for all CEOs in the annual Business Week executive pay survey.
The report looked at companies which are under investigation by the SEC, Department of Justice, and other agencies and which have had market capitalizations over $1 billion sometime since January 2001 and: Adelphia, AOL Time Warner, Bristol Myers Squibb, CMS Energy, Duke Energy, Dynegy, El Paso, Enron, Global Crossing, Halliburton, Hanover Compressor, Homestore, Kmart, Lucent Technologies, Mirant, Network Associates, Peregrine Systems, PNC Financial Services, Reliant Energy, Qwest, Tyco, WorldCom, and Xerox.
Collectively, the CEOs at firms under investigation pocketed $1.4 billion from 1999 to 2001. While these executives are cushioned by the vast wealth they have accumulated, their shareholders and employees are dealing with massive losses. Between January 1, 2000, and July 21, 2002, the value of shares at these firms plunged by $530 billion, about 73 percent of their total value.
Employees of the 23 companies have suffered a total of 162,000 layoffs since January 2001. Tyco, for example, has laid off 18,400 workers in that time. The company paid CEO Dennis Kozlowski $331 million from 1999 to 2001 and gave him over $135 million for luxury living. Kozlowski has since resigned in disgrace.
Taxpayers shoulder the burden when corporations show different books to shareholders and the government. A recent IRS study shows that hocus-pocus accounting techniques allowed companies to report profits to shareholders that were 24% higher than the profits reported to the IRS. Profits reported to shareholders rose from $753 billion in 1996 to $817 billion in 1998, while corporate profits reported to the government declined over the same period from $660 billion to $658 billion.
Stock option accounting explains a major portion of this discrepancy, especially in the high tech sector. Merrill Lynch estimated that if stock options were treated as expenses, earnings for the S&P 500 would have been 21% lower in 2001 and an estimated 10% lower in 2002.
When Congress reconvenes after Labor Day, legislation to require the same option accounting for shareholders and the government will be debated.
High-tech companies lobbying to preserve the status quo on stock options have a great deal to lose. TechNet, a high-powered group of high tech executives, is leading the lobbying effort. If the companies run by TechNet Executive Board members had been forced to expense options in 2001, their reported earnings per share would have declined between 14 percent and 100 percent.
CEO pay remains stubbornly high, despite a slight drop in CEO pay from 2000 to 2001. The CEO-worker pay gap of 411-to-1 is nearly ten times as high as the 1982 ratio of 42-to-1.
Worker pay is again stagnating: the Commerce Department reports lower wages and salaries in August 2002 than in December 2000. If worker pay had grown as fast as CEO pay since 1990, production workers would have averaged $101,156 in 2001 instead of $25,467. If the minimum wage had grown as fast as CEO pay, it would have been $21.41 an hour in 2001 instead of $5.15.
The explosion of corporate scandals has helped stoke a growing backlash against excessive executive compensation. The report offers a 9-course menu of remedies, including expensing options, ending taxpayer subsidies for excessive pay, banning special perks to executives, and improving transparency and corporate accountability.
The report, authored by Scott Klinger, Sarah Anderson, Chris Hartman, John Cavanagh and Holly Sklar, is the ninth annual CEO pay study by the Institute for Policy Studies and United for a Fair Economy. Scott Klinger is a Chartered Financial Analyst and also the co-author of "Titans of the Enron Economy: The Ten Habits of Highly Defective Corporations" (available on the web at www.faireconomy.org).
The Institute for Policy Studies is an independent center for progressive research and education in Washington, DC. United for a Fair Economy is a national organization based in Boston that spotlights growing economic inequality.
A PDF version of the report is available on the web: http://www.FairEconomy.org
For hard copies, call 617-423-2148 x13 or e-mail bleondar-wright (at) faireconomy.org
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See also:
www.FairEconomy.org
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CEO Greed, Worker Sacrifice Since last September |
by Holly Sklar
(No verified email address) |
Current rating: 0
30 Aug 2002
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Labor Day came twice last year. A week after the parades and picnics, Americans had their real Labor Day on Sept. 11. Americans poured out thanks to firefighters, police officers, paramedics and other workers who put themselves on the line to save others. Wall Street stockbrokers and secretaries, CEOs and minimum wage workers died--and survived--together.
The spirit of shared sacrifice was shattered in October as a parade of companies led by Enron began imploding from CEO greed.
Some of America's worst CEOs make more in a year than the best CEOs of earlier generations made in their lifetimes.
CEOs pumped up stock with accounting steroids, hitting quarterly earnings homeruns while doing serious damage to their companies, workers, shareholders and the economy.
Global Crossing Chairman Gary Winnick, who Fortune called "the emperor of greed," cashed in $735 million in stock over four years while leading the company to bankruptcy. The double crossing Winnick bought a California estate worth $94 million after $30 million in renovations. Meanwhile, reports NBC, "Global Crossing workers lost their jobs, their severance pay, and promised medical benefits. Entire 401(k)s were decimated. With the exception of a select group of executives, Global Crossing employees could not unload their stock for five years."
Back in 1950, when Business Week began ranking CEO pay, the highest-paid executive was General Motors President Charles Wilson, who made $4.4 million in inflation-adjusted dollars. In 2001, the highest paid CEO was Oracle's Lawrence Ellison at $706 million--nearly $2 million a day.
Wilson would have had to work for 160 years to match Ellison's $706 million.
The average CEO of a major corporation made $11 million in 2001, including salary, bonus and other compensation such as exercised stock options. That's more than $33,000 seven days a week, in a year when the economy tanked.
CEOs made about 565 times as much as security guards, 445 times as much as emergency medical technicians and paramedics, 442 times as much as secretaries, 312 times as much as firefighters and 271 times as much as police officers.
Back in 1960, CEOs made an average 38 times more than schoolteachers, according to Business Week. By 1990, CEOs made 63 times as much. In 2001, CEOs made 264 times as much as public school teachers.
The Census Bureau recently analyzed what people could expect to earn, on average (adjusted to 1999 dollars), during a hypothetical 40-year working life at full-time jobs. College graduates could expect $2.1 million and high school graduates $1.2 million.
Workers with a professional degree, such as doctors and lawyers, could expect to earn $4.4 million during their working life--not even half what CEOs make in just a year.
While CEO pay spiraled out of control, worker pay was largely stagnant for decades. Average hourly earnings for production workers in 2001 were 9 percent lower than their 1973 peak, adjusting for inflation.
If workers' wages had kept pace with productivity gains since 1979, average hourly earnings would have been $21.71 last year, not $14.33.
This Labor Day, workers need rescue. Congress should start by raising the minimum wage, which would help boost the stagnant pay of average workers as well.
It takes more than three jobs at the minimum wage of $5.15 an hour--$10,712 a year--to support a family. The real value of the minimum wage peaked in 1968 at $8.28 per hour (in 2002 dollars). Today's minimum wage workers earn 38 percent less.
Members of Congress made 9 times as much as minimum wage workers in 1968 and 14 times as much today. In 1997, when the minimum wage was last raised, to $5.15 an hour, members of Congress earned $133,600. Since then, they've increased their pay by $16,400--much more than minimum wage workers earn in a year. Unless the Senate blocks it, Congressional pay will rise from $150,000 now to $155,000 in January 2003.
Congress should forgo another pay hike until the minimum wage has been raised enough to bring it back to the 9-to-1 ratio that prevailed in 1968. That would help Congress become more representative of low-and middle-income Americans and less representative of the swindling CEOs who pretended what was good for them was good for the country.
Holly Sklar is coauthor of "Raise the Floor: Wages and Policies That Work for All Of Us" (www.raisethefloor.com). She can be reached at hsklar (at) aol.com and Box 1045, Boston, MA 02130.
(c) Copyright 2002 Holly Sklar
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