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June 07, 2005
CEO Pay Far Outpacing Average Worker's Pay

CEOs at California's largest 100 public companies took home a collective $1.1 billion in 2004, up almost 20 percent from 2003, the Los Angeles Times reports.

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By comparison, data from the Economic Policy Institute in Washington shows that the average California worker got a raise of 2.9 percent last year.

The Times, which surveys the pay of California executives annually, says the numbers reflect "a national trend: a widening chasm between the pay of chief executives and rank-and-file employees."

For the 10 best-paid executives in this year's survey, the jump was even more bigger. They took home 36.7 percent more than last year's top 10, garnering a collective $467.5 million. "That's enough to buy about 275 homes in Malibu or 1.5 million sets of golf clubs or two 747 jumbo jets." the Times reports.

Nationally, "the average CEO made 42 times the average worker's pay in 1980. That increased to 85 times in 1990 and is now over 300 times," said Brandon Rees, a research analyst with the AFL-CIO's office of investment, a group that tracks, and is critical of, executive pay policies. "That is clearly not a sustainable rate of growth."

Compensation consultants told the Times that high salaries are driven by competition for the best bosses.

"There's a different market for executive-level jobs," said Nadine Winter, a compensation consultant with Watson Wyatt Worldwide in Los Angeles. "If one company pays more than the market rate and others feel that they have to compete to get top talent, that's what they do. The market has its own momentum."

Topping the Times' pay list this year is Terry Semel, chief executive of Yahoo Inc. His total compensation of $145 million nearly doubles the $74 million given to last year's leader, Steve Jobs of Apple Computer.

According to the Times, Semel's case illustrates one reason that executive pay is skyrocketing: Companies make lucrative deals to recruit executives, then have a tough time scaling those deals back.

Semel, who previously co-led the Warner Bros. movie studio, was tapped by Yahoo in 2001 to reinvigorate a company that some analysts said was in a "death spiral." Impressed by Semel's solid credentials in the entertainment industry, Yahoo's board agreed to give him 11 million stock options. The hiring paid off, with Yahoo's profits rising 237 percent last year. Yahoo shares, meanwhile, have quadrupled in value.

Last year, Semel reaped $230 million when he exercised 10.1 million in stock rights that were granted to him in previous years. But in addition, the company's board gave him 7.2 million additional stock options, worth an estimated $144.3 million. Add his salary of $600,000, and Semel's total pay in 2004 amounted to $145 million, up nearly 24,000 percent.

(The Times said it excluded the gains from the sale of stock options in its calculation of "total direct compensation" because the money, although realized in 2004, was earned in previous years.)

Compensation critics told the newspaper that they don't begrudge Semel the $230 million he realized by exercising his past options, but they're critical of the board's decision to continue giving him additional stock options year after year.

"Initially, what the board did at Yahoo was really smart. They awarded him a huge grant of options, but some of them were at a premium price," said Paul Hodgson, research analyst with the Corporate Library, a company watchdog group. "Subsequent decisions by the compensation committee have not been as inspired. They keep feeding him stock options, in enormous quantity, and they're all at market prices. They need to find a new tool."


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