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Highest-paid CEOs typically don't deliver, watchdog group says

Kansas City Star • 4/6/01

by Diane Stafford

Stock performance has been mediocre at companies headed by the nation's highest-paid chief executives, according to an organization that campaigns against the growing pay gap between top executives and other workers

"It's a myth that CEOs are paid for excellence," said Scott Klinger, author of a report released Friday by United for a Fair Economy. "Typically, their companies don't deliver excellence."

The report, posted on the organization's Web site at www.faireconomy.org, looks at stock performance of the public companies headed by the nation's 10 highest-paid executives for each of the seven years between 1993 and 1999.

In all, about 40 major companies showed up on the lists, given that chief executives move on and off the highest-paid lists each year. The report relied on compensation figures gathered by Business Week magazine, which annually publishes a CEO pay list, and on stock and index performance data provided by Bloomberg LP.

Klinger, who is co-director of Responsible Wealth, a project of the Fair Economy group, compared each company's stock performance with the performance of the Standard & Poor's 500-stock index and with the performance of "peer group" companies over one-year and three-year time periods following a CEO's appearance on the highest-paid lists.
Some of the conclusions:

In six out of seven of the one-year time periods following a chief executive's appearance on the top-10 list, his company underperformed the S&P 500.

In each of the three-year time periods examined, 50 percent to 71 percent of the chief executives' companies trailed their industry peers in performance.

In each of the years between 1994 and 1999, half or more of the companies announced sizable layoffs within three years of the CEO's appearance on the highest-paid list.

Klinger took aim at chief executive compensation packages that were heavy with stock options.

"Extravagant stock options in the face of the rapid and consistent rise in the stock market throughout the 1990s meant it was possible for holders of large option grants to ride the rising market tides, creating cruise ship personal wealth for rowboat performance," Klinger wrote.

The Responsible Wealth project endorses efforts to index executive stock options to their company's peer groups. It also backs shareholder resolutions to cap annual options granted to any single executive.

The project has filed shareholder resolutions to alter executive pay packages at seven companies: Disney, Fleet, Citigroup, Raytheon, Household International, Exxon Mobil and AT&T. The texts of those resolutions are available at www.reponsiblewealth.org.

Copyright 2001, The Kansas City Star.

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