Study Ties Biggest CEO Raises to Largest Layoffs
Chief executives of companies that had the largest layoffs and most underfunded pensions and that moved operations offshore to avoid U.S. taxes were rewarded with the biggest pay hikes in 2002, on average, a new report has found.
The study, released Monday by United for a Fair Economy in Boston and the Institute for Policy Studies in Washington, used methodology that some companies criticized as misleading. Still, the report may add to the furor over executive pay.
Carol Bowie, director of governance research at the Investor Responsibility Research Center in Washington, said the study "demonstrates the flaws in how some incentive pay plans are constructed."
Many plans "are fairly short-term in nature and all of these things -- layoffs, underfunded pensions and going offshore to avoid taxes -- can pump up short-term results," Bowie said.
While the median CEO pay increase was 6% in 2002, median pay rocketed 44% for chiefs of the 50 companies that announced the biggest layoffs in 2001, according to the study.
At the 30 companies with the greatest shortfall in their employees' pension funds in 2002, CEOs that year made 59% more than the CEO median reported in BusinessWeek's annual executive compensation report, the study said.
Among the 24 companies with the most offshore subsidiaries in tax-haven countries, CEOs earned 87% more than the median pay for the last three years, the study concluded.
In the case of tax havens, CEO pay was measured over a longer time frame because the decision to use tax havens is considered a long-term move rather than a short-term step, said Chris Hartman, research director for United for a Fair Economy.
The group, founded in 1994, says its mission is to "focus public attention on economic inequality." The Institute for Policy Studies, founded in 1963, calls itself "an independent center for progressive research and education."
At the top of the study's list of companies that announced large layoffs in 2001 was Palo Alto-based Hewlett-Packard Co., which set plans to shave nearly 26,000 jobs that year.
In 2002, HP's CEO, Carly Fiorina, saw her pay rise 231% from 2001, to $4.1 million, the study said.
An HP spokeswoman "strongly disputed" the implied correlation, saying that Fiorina's base pay has remained constant. All employees, including the CEO, received a bonus in 2002 because the company met certain performance goals, the spokeswoman added. Fiorina turned down a merger-related bonus, she said.
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