Steve Jobs, head of Apple Computer, was paid only $1 (#1.12) in salary last year. But when other "direct compensation" was taken into account, his total take-home pay amounted to $90,000,001. This at a time when shares in Apple computer dropped from a high of $75 to $22, shrivelling up the portfolios of shareholders.
Despite the slowing economy, chief executives in the US have been receiving richer rewards than ever. Investors lost 12 per cent of their portfolios last year, but company bosses generally got a 22 per cent raise in salary and bonus, and more in stock.
The chief executives of the top 200 US companies raked in an average $10.89 million each before taxes in 2000, according to a survey by Executive Compensation Advisory Services. A bigger piece of pie for the bosses means a smaller slice for everyone else. During 2000, the wages of hourly workers rose a mere 2 per cent and the salaries of regular employees just 4 per cent.
Compare these lavish chief executive pay levels with the $161,239 paid annually to Fed chairman Mr Alan Greenspan, a pittance to a mid-west company executive, or the $258,552 per annum for UN Secretary General, Mr Kofi Annan. The average chief executive's pre-tax pay in the US is now 400 times that of a factory worker, whereas in Japan it is only 11 times employees' wages.
Some US chief executives didn't even have to worry about taxes. Mr C. Dowd Ritter, president and chief executive of one of Florida's biggest banks, the Amsouth Bancorporation, was paid $6.2 million for meeting the company's long-term goals and then received another cheque for $2.5 million to cover his tax bill, though shares in Amsouth are down 15 per cent from their yearly high.
But falling share values have not stopped the boardroom grab fest, though executive pay is supposed to be linked to performance, especially since the early 1990s when furious US shareholders, with the backing of big institutional investors, rebelled against a series of outrageous rewards paid to chief executives. As a result of their protests, it became common practice to award company bosses stock options instead of bloated cash payments. This gave them the right to buy the company's stock at a set price within a defined period of time. It was meant as an incentive. If the stock price rose, the chief executive could buy the stock at any time at the lower value and sell it on the market at the higher price. If it fell, the options became worthless.
In theory the fortunes of executives and shareholders should have become inextricably linked. In practice, it hasn't always worked out like that. First, when executives claim their options, new stocks are issued, watering down the holdings of other shareholders. Options also give chief executives a personal stake in sometimes risky takeovers that boost share prices, and provide a temptation to buy-back stock with company money, as this lowers the number of shares on the market and thereby increase share values.
In some cases where stock options became useless because of falling share values, top executives have simply been given fresh contracts with new stock options at lower prices. In a number of the floundering tech companies which have cost investors their shirts, chief executives have ensured generous pay-days for themselves simply by selling their own stock before the price plummeted.
Mr David Rickey, chief executive of Applied Micro Circuits, sold 90 per cent of his stockholdings since July when the price was $100 a share. Now the stocks are trading at only $29 but Mr Rickey is richer by $170 million.
Chief executives often justify their multimillion dollar bonuses by saying managing a big company is getting more complex and their turnover rate is high. In some instances company heads and directors have suffered alongside shareholders. Mr Robert Wrubel of Ask Jeeves saw his holding fall in value from $180 million to $500,000 in just over a year, during which time he only cashed stock worth $1.5 million. He told the New York Times: "I just thought it was not ethically appropriate of me to take advantage of the situation."
Other chief executives have been more fortunate. IBM chief executive Mr Louis Gerstner spent billions of dollars of the computer company's money repurchasing IBM shares, though stock still fell from $134 to $96. According to the survey, Mr Gerstner received salary and bonuses of over $13 million and profited by almost $60 million from options last year. He still holds options worth over a quarter of a billion dollars. At that rate, he may soon be making serious money.
