The Growing Scandal Of Corporate Executive Pay

Last year was boffo for Manpower CEO Jeffrey Joerres , whose total compensation exploded by 80%, to a munificent $8.2 million.This figure comes from Sunday’s New York Times , which did its annual roundup of executive salaries at top public companies nationally. The story found that compensation rose by an average of 27% for executives at 200 of the largest publicly owned companies. By contrast, the pay of average workers in America went up by 2.9% in 2005, failing to keep up with an inflation rate of 3.3%.The story suggested that the rise in CEO compensation has little to do…

Last year was boffo for Manpower CEO Jeffrey Joerres , whose total compensation exploded by 80%, to a munificent $8.2 million.

This figure comes from Sunday’s New York Times , which did its annual roundup of executive salaries at top public companies nationally. The story found that compensation rose by an average of 27% for executives at 200 of the largest publicly owned companies. By contrast, the pay of average workers in America went up by 2.9% in 2005, failing to keep up with an inflation rate of 3.3%.

The story suggested that the rise in CEO compensation has little to do with market forces. The main causes: Many CEOs have the whip hand because they also serve as chairmen of the board; boards usually include other CEOs who are sympathetic to their colleagues; and compensation consultants paid by the company recommend big pay days for the CEO. These factors are also at work locally.

The list of 200 included seven Milwaukee companies and CEOs. In addition to Joerres and Manpower, there were Johnson Controls’ John Barth , with a total compensation of $11.9 million (down 30%); Marshall & Ilsley’s Dennis J. Kuester at $6.4 million (up 1%); Rockwell Automation’s Keith Nosbusch , with $6.3 million (up 52%!); Wisconsin Energy’s Gale Klappa at $4.4 million (up 8.5%); Harley-Davidson’s James Ziemer , with $3.3 million (no figure for previous year); and Kohl’s R. Lawrence Montgomery , with $1.6 million (up 60%). Montgomery, of course, took home some $30 million two years ago.

The annual roundup of Wisconsin salaries by the Milwaukee Journal Sentinel generally comes out in June and frequently claims that local CEO pay is more modest. Actually, the pay here is pretty comparable when you take into account the size of companies (a major factor in compensation) and the fact that Wisconsin companies are smaller on average than the biggest ones nationally.

When viewed proportionately, “CEO pay is much larger at small and mid-sized companies,” Harvard Law School professor Lucian Bebchuk told The Times . Bebchuk has co-written a book on executive compensation.

A recent national survey found that 81% of Americans believe chief executives of large companies are overpaid. The increasing gap between worker and executive pay is contributing to the largest wealth gap seen since the 1920s.

The explosion in executive pay is cutting into company profits, fueling cynicism about the American system and raising questions about how effectively companies are governed. A board that doesn’t effectively monitor executive pay is “probably symptomatic of bigger problems that will eventually drive down the stock price,” said Charles M. Elson , an expert on corporate governance at the University of Delaware, to The Times . “That’s a lesson investors should have learned from Enron.”

Why Your Utility Costs Keep Skyrocketing

One place where executive salaries keep rising is at WE Energies. A recent column I did noted that Gale Klappa , the CEO of its parent company, Wisconsin Energy, earned just over $4 million in 2004, and several other executives at the company earned between $1.3 million and $2.7 million. Klappa’s compensation jumped to $4.4 million in 2005, as noted above. In the last year, company executives collected a cool $4.7 million in bonuses, an excellent front-page story in the Sunday Journal Sentinel found.

The utility, of course, is a legal monopoly that can pass these costs down to us. The JS story, by reporter Thomas Content , found that electric rates are up by 24% and gas bills up by 47% since 2000. Another JS story not long ago showed that energy costs in Wisconsin are the highest in the Midwest, significantly raising the cost of doing business and creating a drag on the local economy.

The big hole in the Sunday JS story was the question of why prices are skyrocketing. The story noted the rising price of natural gas and the push by utilities to build new power plants and transmission lines. But it all but ignored the state Public Service Commission, whose official role is to serve the public interest by assuring that “adequate and reasonably priced service is provided to utility customers.”

In fact, the commission tends to be stacked with members who came from or are on their way to jobs in the industry and who easily roll over for any request to hike prices. If the PSC really represented the public interest, there would be no need for a second layer of watchdog groups, nonprofits like the Citizens Utility Board, a consumer activist group, or the Wisconsin Industrial Energy Group, which represents 40 private companies concerned about utility hikes. (Full disclosure: One of the 40 members of WIEG is Quad/Graphics, parent company of Milwaukee Magazine .)

In the past, WIEG has argued that WE Energies’ profit margin should be kept at 9% to 10.5%. In recent years, the PSC has allowed an annual return of more than 12%. Considering that the company’s stockholders are investing in an ultra-safe monopoly, you have to wonder why such a high return is needed. Until the PSC is reformed and turned into a watchdog with real teeth, the only protection for Wisconsin citizens and corporations is to invest in utilities and make some money off of the high prices we’re all paying.

It’s Time for the University of Milwaukee

Last week, a group of students and instructors rallied to support changing the name of UWM to Wisconsin State University. Other than the silly use of the word “ninjas” the group used to describe itself, its rally was a heartening sign of a university that is getting more serious about itself and a younger generation that is excited about what this city has to offer.

I think a name change deserves consideration, but what is the best replacement? As with Iowa State or Michigan State, the change to Wisconsin State would suggest a university with a statewide impact, while junking a hyphenated name that inevitably implies the university here is some sort of adjunct to UW-Madison. The hyphenated name essentially puts UWM in the same class as UW-River Falls or UW-Green Bay.

But Wisconsin State inevitably suggests the state capital in Madison or somewhere in the hinterlands. The University of Milwaukee, by contrast, makes clear what and where the institution is — a school in the state’s best-known and leading private-sector city. It extends the idea of UWM Chancellor Carlos Santiago that we need a university with a stronger research base that connects to the private sector.

Like the universities of Chicago, Miami, Houston and Memphis, the University of Milwaukee advertises the city. (Milwaukee University wouldn’t work, as MU is already taken in this town.) Whenever the basketball team plays in the NCAA, it will be more easily remembered and will more effectively evoke this city as the University of Milwaukee. And when the sports page shortens the name, it will be Milwaukee, just as UW-Madison is called Wisconsin.

The U of M also echoes the “Milwaukee Idea” of former Chancellor Nancy Zimpher , which, however vague its specifics, makes the point that the university should be connecting to and serving the community.

Or you can just embrace the opinion of Journal Sentinel columnist Jim Stingl , a UWM alumnus and very nice guy who can’t see any reason to switch. “The name is fine, if a little long when written out,” was his incisive opinion. Also, “it contains the proud University of Wisconsin brand.”

Translation: It’s okay to be second-rate and overlooked forever.

On the other hand, we might consider something that’s always a bit radical in Milwaukee: change.

I’ll be on vacation next week, back with a column April 25.

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