Now there is nowhere for the bosses of corporate America to hide their bulging pay packets. In spite of years of defensive lobbying, they are having to reveal all under new Securities and Exchange Commission (SEC) rules that have just begun to take effect. This burst of sunlight could not have come at a worse time for them. It coincides with a shift in the control of Congress to the Democrats and the start of the presidential election campaign, in which “overpaid” chief executives will make an easy target.
Although barely one-tenth of the 2,000 biggest American companies have yet reported under the new rules, the tally of negative headlines is already mounting. “There are already plenty of examples of firms reporting chief-executive pay packages of millions of dollars more than expected,” says Paul Hodgson of the Corporate Library, a research firm. He reckons that the firms that have already reported are a representative sample likely to provide a good indication of the overall trend. Top of the heap so far is Ken Lewis, boss of Bank of America, with total pay in 2006 valued at $114.4m.
One area of generosity is the chief executive’s future pension. Another is “deferred pay”, whereby a top executive leaves some part of his salary in the hands of the firm, as a loan of sorts. GE recently reported that Robert Wright, until recently the boss of NBC Universal, its entertainment subsidiary, has accumulated deferred pay worth $40m, the highest so far. Quite why a boss or firm should want to resort to this tactic has never been clear, although the suspicion has always been that the firms are offering managers unusually good returns at the shareholders’ expense. Now the details of these arrangements are being published for the first time, so it will become clear whether that was so.
In a study of 100 firms that have reported, Mr Hodgson found that the perks given to chief executives, though relatively small, were much higher than those reported last year under the old, less exacting, disclosure rules. On average, the amounts reported in 2006 under the heading “other annual compensation” in 2006 were $192,000 — 131 percent higher than in the corresponding category in 2005. One reason for this jump was that the new rules require the disclosure of all perks worth $10,000 or more, whereas the old rules allowed firms to keep quiet about anything worth less than $50,000.
Of particular interest will be the data on personal use of the corporate jet. This is expected to decline sharply as firms start to charge the boss for personal flights in order to avoid embarrassing headlines. No company wants a repeat of the battering suffered by Tyson Foods after revelations that “friends and family” of Donald Tyson, a former boss, made undisclosed use of the corporate jet — valued at over $1m — without his even being on board.
Another likely target is the golden parachute for a departing boss, especially if he has left because of poor performance. This is increasingly a focus of activist shareholders, including hedge funds. On March 20th John Antioco, the boss of Blockbuster, a video-rental firm, announced that he would resign by the end of the year. Following a long battle over his bonus with Carl Icahn, a legendary corporate raider, he agreed to accept much less in severance than he had said he was entitled to under his contract.