CEO Greed: Bad for Business
There's been a small flurry of stories lately about skyrocketing pay among corporate execs. The New York Times, for example, recently reported that the average corporate CEO made $9.84 million in 2004. You can find out more about the issue here.
The way corporate boards shower obscene riches on CEO's is an incestuous racket and one that our leaders in Washington have fought any attempts to scrutinize -- even as they refuse to inch up the minimum wage for working stiffs by a measeley $1 an hour.
The standard excuse given for the outlandish sums of money forked over to CEO's while the wages of working people stagnate is that the head honchos are being rewarded for good performance.
Unfortunately for the rich and famous -- or at least the rich -- a new study by Moody's Investors Service finds that these staggering sums of wealth aren't only morally dubious, they also correlate with bad business behavior:
Companies that sweeten executive compensation with unusually large bonuses or options plans tend to have deeper and more frequent credit downgrades and higher bond-default rates than those that don't offer such plum packages, according to a Moody's Investors Service report.
The numbers clearly don't lie:
Moody's found that of the 43 companies rated "B3" or higher that defaulted between 1993 and 2003, 22 offered their CEOs much-larger-than-expected bonuses or stock-option grants or both at least once. Of the 214 that experienced large downgrades -- that is, three or more ratings notches within 12 months -- CEO compensation was higher than expected in 140 cases. Some 50 of those finished in the top 10% for plan generosity across their industries.
I don't see elected officials from either party lifting the banner for greater scrutiny of executive compensation and its threats to the economy. But isn't this something a broad section of the public could get behind?
Chris Kromm is executive director of the Institute for Southern Studies and publisher of the Institute's online magazine, Facing South.