Exclusive Data Paints Troubling Picture Of Skyrocketing CEO Pay

Exclusive Data Paints Troubling Picture Of Skyrocketing CEO Pay

The rise in U.S. income inequality in recent decades is largely due to massive wealth accumulating at the top of the income scale. The press and popular culture treat this phenomenon almost as if natural forces were guiding it -- an invisible hand dealing out different shares to different people.

But the hands doing the dealing are in fact quite visible. They belong to the directors of the boards of the major companies in the U.S. and around the globe. One key source of wealth at the very top is the pay of the executives of our largest companies. That pay is approved by corporate directors, who are themselves paid for their service. Many of those directors are also executives at other companies, meaning they sit on both sides of the arrangement.

Some argue these executives' pay is the just dessert for their talents and hard work. They're at least partly right: It's reasonable for a CEO, responsible for the fate of the company, to make more than, say, her assistant.

Since 1950, however, the ratio of CEO to employee pay has widened by 1000 percent, according to Bloomberg data. Across party lines, the American people believe that corporate execs make too much. A new HuffPost/YouGov survey found that two-thirds of people say the payouts are too high, with even 58 percent of Republicans agreeing.

Sky-high CEO salaries trickle down, but not far. A low six-figure salary no longer seems reasonable when the top boss is taking home $30 million and his -- the CEOs are almost always male -- deputies are pulling in several million themselves. As CEO pay climbs, those just under the chief executive demand raises, as do executives just under them.

The trickle runs dry quickly, though. Wages for rank-and-file workers have stagnated. No wonder those at the lower ends of the income scale feel less and less like stakeholders in the economy. No wonder their estrangement turns to anger, especially when those at the top cause even more pain for those below them by, say, blowing up the economy in a financial crisis, or squeezing worker pay, or exploiting tax loopholes in order to keep more of the cash they use to pay their huge salaries.

Salaries for top executives and payments to board members are all publicly available inside shareholder filings, but have never been displayed in an easy-to-explore way. Researchers at the Center for Economic Policy and Research compiled the data, and The Huffington Post is presenting it here as part of a new project focusing on one major element of income inequality. We're calling it Pay Pals.

"Our system of corporate governance has become a joke," said Dean Baker, an economist and the head of CEPR. "The directors are supposed to be as aggressive in holding down the pay of the CEOs and top management as management is in holding down the pay of ordinary workers. How many directors have ever asked if they could find a comparably skilled CEO in Europe or China at a fraction of the pay? This never occurs to the directors, because the CEOs are their friends, and you don't treat your friends this way."

The system operates largely in the open, with corporate records filed publicly for shareholders to view. But there is little practical transparency around the issue. Based on research conducted by Baker's CEPR, which combed through Securities and Exchange Commission filings, HuffPost has built the first-ever interactive database of every director of every company in the Fortune 100.

Who's signing off on these big salaries? How much are they getting paid to do it? How well has the company done?

In a recent example of the chumminess of boards and CEOs, JPMorgan Chase's board gave CEO Jamie Dimon a 74 percent raise, in a year when the bank paid more than $20 billion in regulatory penalties.

Dimon and his proxies said that these penalties were unfair to the bank, suggesting the government had made him and JPMorgan scapegoats for the misdeeds of Wall Street. They argued that Dimon should be rewarded for guiding the bank through troubled times. The board -- chaired by Dimon and including several other current and former highly paid CEOs -- agreed.

Or take Erskine Bowles. He became independent lead director at Morgan Stanley in late January, after sitting on the board since 2005. He is best known for his work as a co-chair of the National Commission on Fiscal Responsibility and Reform, aka the Simpson-Bowles Commission. He also co-founded the Campaign to Fix the Debt, a bipartisan group advocating for long-term deficit reduction. He has crisscrossed the country in the name of fiscal soundness since.

Bowles is also a director at Facebook, Norfolk Southern Corp. and Belk. While he has toured the country over the past several years warning of reckless government spending, he has made millions sitting on the boards of companies that are dramatically underperforming against the market, yet lavishing generous payouts on their respective CEOs -- all with the approval of the board of directors.

In 2007, Bowles received $335,000 for his work as a director at Morgan Stanley. From 2008 through 2012, the financial firm paid him $1.67 million, according to a review of public records. In the wake of the financial crisis, CEO pay there was held down to less than $1.3 million annually in 2008 and 2009. But from 2010 to 2012 -- when the firm’s stock fell significantly -- CEO pay totaled $38.8 million.

In February 2011, Bowles became a director of Norfolk Southern Corp. He was paid $594,415 for his service to the railroad company, according to records. In 2012, Norfolk Southern’s stock performance trailed the benchmark Standard & Poor's 500-stock index. That year, CEO Charles W. Moorman IV’s compensation totaled $12.7 million, 16 percent above what it had been in 2010.

In September 2011, Bowles joined the board of Facebook prior to the social media website’s May 18, 2012, initial public offering. Facebook’s stock fell sharply following its IPO, though it has since rebounded. Some financial analysts remain skeptical of Facebook’s ability to increase its advertising base in the years to come.

Bowles was a member of the General Motors board from June 2005 until April 2009, when the auto giant filed for bankruptcy. He also served on the board of the embattled doughnut maker Krispy Kreme. And from April 2003 through May 2012 he served on the board of Georgia-based Cousins Properties, a real estate investment firm.

During his time at Cousins, the firm underperformed the market average. Since the recession, its stock has fared particularly poorly. Meanwhile, from 2008 to 2011, the last full year Bowles was a director at Cousins, CEO pay increased by 73 percent. The next year, CEO compensation increased by another 276 percent.

Neither Bowles nor his representatives responded to several requests for comment.

Some economic studies have found that unusually high CEO pay is, paradoxically, typically associated with sub-par corporate performance and stock returns. One recent paper, by economists Michael Cooper of the University of Utah, Huseyin Gulen of Purdue and Raghavendra Rau of Cambridge, found that stock market returns of the top 10 percent of companies in terms of CEO generosity lagged the rest of the market by about 8 percent over a three-year period.

And the damaging effects of overpaid CEOs only get worse with time, the researchers found. Highly paid CEOs get cocky and take bigger risks, they found -- "value-destroying activities" like dumb mergers and acquisitions.

Despite this evidence, cozy boards have kept jacking up CEO pay, which has risen twice as quickly in the past three decades as the overall stock market, according to a recent study by the Economic Policy Institute, a left-leaning think tank.

Widespread criticism of CEO pay has forced some halting progress. A study last year by Equilar Inc. and the Wall Street Journal found that CEO pay and corporate success have become a little more closely aligned, thanks to the growing use of performance-based stock awards.

But such awards are still only a small fraction of total CEO compensation. And they are not foolproof tools -- boards can and often do ignore pay benchmarks. For years, the board of San Francisco drug distributor McKesson doled out extra stock to CEO (and Chairman of the Board, naturally) John Hammergren, arguably leaving him better compensated than he should have been. At nearly $52 million, his pay last year was among the highest in corporate America -- and it was only a third of the $145.2 million he took home in 2011.

In such cases, shareholders have little recourse. Organizing shareholders into a voting bloc is nearly prohibitively difficult. Even when it does happen, it often still doesn't work. Activist McKesson investors and independent advisers last year launched a campaign to toss out three directors and reject Hammergren's compensation plan. Shareholders voted overwhelmingly to censure Hammergren's pay. But the vote was non-binding.

All three targeted directors kept their seats. And Hammergren kept the money.

-- Eugene Mulero contributed reporting to this story.

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