Magazine

CEOs: Why They're So Unloved


How the mighty have fallen. The cultural perception of the CEO in America has taken a dramatic turn for the worse. Heroes to millions in the '90s, CEOs are increasingly seen as villains. Once they were lionized as larger-than-life generators of wealth for the many or creators of wondrous new technologies. Now they are portrayed as exploiters of the system who are out for themselves. Even the President has felt the need to chastise CEOs about the need for responsibility. Enron, it appears, has tarred the entire managerial class.

The truth, however, is that most CEOs are neither heroes nor villains. They are managers of increasingly complex organizations acting according to incentives that are fairly proscribed. They work within the business cycle, as do investors and consumers. They operate within a global economy, as do investors and consumers. Most Americans are willing to concede these points.

What has really undermined the reputation of the managerial class is the perception that it is breaking a fundamental cultural rule central to American values: fairness. CEO pay is so huge that people don't believe executives deserve it. Many CEOs no longer require that they get paid well for their services; they demand huge wealth to the tune of tens and hundreds of millions of dollars. In 1980, CEO compensation was 42 times that of the average worker. In 2000, it was 531 times. This is a winner-take-all philosophy that is unacceptable in American society, especially at a time when teamwork is being extolled as the key to higher productivity and company success and all employees are putting in long hours at the office or on the line. The size of CEO compensation is simply out of hand.

Worse, CEO pay is increasingly disconnected to CEO performance, making compensation appear even more unfair to average people. Former Ford Motor Co. (F) CEO Jacques A. Nasser was ousted last year when his company reported a $5.45 billion loss. Workers were laid off as a result of that performance, and salaries for nearly everyone left suffered. Yet Nasser was given about $20 million in compensation for the year, depending on how well Ford stock does in the future. Who wouldn't be furious at CEOs after this?

It gets worse. For 2001, Joseph P. Nacchio, chief executive of Qwest Communications International Inc. (Q), received a $1.5 million bonus, $24 million in cash, $74 million in exercised options, and was granted 7.25 million new options worth $194.2 million if Qwest stock rises 10% during the next decade. This is in a year that Qwest posted a $4 billion loss and employees were laid off. The Securities & Exchange Commission is investigating whether Qwest Communications used aggressive accounting in 2000 and 2001 to keep its stock flying high while Nacchio was exercising his options. Qwest's stock price is down 55% so far this year. Where is the fairness to those laid off at Qwest or to the thousands of Qwest shareholders?

Some chief executives are even doubling up on their compensation. On top of existing options, they are getting options on tracking stocks that have been spun off from their companies. Although they are managing the same assets and employees, top executives get paid twice. At Sprint Corp. (FON), seven of the company's top executives have realized gains of $185 million from options on the tracking stock of its wireless operations.

This is all egregious behavior that strikes most Americans as patently unfair. Getting rewarded for failure doesn't parse in this country. Taking away from a team effort isn't acceptable. Across the nation, parents are teaching their children values that many chief executives appear to break every day when it comes to their own pay. It's time for CEOS who know better to speak up.

President Bush has used public shame to remind CEOs of their responsibilities. Corporate America's leaders should act to restore the public's faith in the managerial class.


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