Media Clips

Intelligencer Journal

May 5, 2008

Executive Pay
If Armstrong World Industries were riding along in, say, a 1980s- style growth mode, we doubt people would be raising many questions about executive pay.
After all, a rising tide lifts all boats, even if those with the biggest boats rise higher and more quickly.
But how does a company explain a 57.8 percent increase in pay to its CEO when net profits shrink by 41.5 percent? How can a corporate board offer executive raises ranging from 7 percent to 39.8 percent when it is cutting workers' hours?
Last week, it was disclosed that Lancaster-based Armstrong chairman and chief executive officer Michael D. Lockhart earned $10.8 million in 2007 - 57.8 percent more than the previous year.
That same week, Armstrong announced a first quarter net profit decline of 41.5 percent, and workers at the Dillerville Road flooring plant were told they will be working only three weeks out of every four due to a weak domestic economy.
To suggest that rank-and-file workers are angry about executive raises at a time when their hours and paychecks are being cut is an understatement.
According to the Institute for Policy Studies - United for a Fair Economy, chief executive officers of large companies earned an average of $10.8 million in 2006. That's right in Lockhart's range. The report also noted that the average CEO's pay was 364 times more than that of the average worker.
However, the debate over out-of-control executive pay may get a bit more interesting today when Aflac Inc. reveals whether shareholders approved or disapproved Chief Executive Officer Dan Amos' $14.8 compensation package.
Aflac's say-on-pay'' vote is a nonbinding referendum. That is, it will not affect the $14.8 million he is to receive. But if shareholders disapprove Amos' compensation, he said changes will be made.
If it's broke, you gotta fix it,'' Amos said in a teleconference call.
Shareholders typically have no say in executive pay. Oh, shareholders have protested at corporate meetings on a variety of topics from plant closings to stock prices to executive compensation. But those protests are usually noted for the record and dismissed.
The say-on-pay'' movement, however, is gaining support, largely among pension funds whose shareholders want greater accountability from CEOs.
Stephen Davis of the Yale School of Management's Millstein Center for Corporate Governance and Performance told Bloomberg News that in countries where say-on-pay exists, it has proven to be a catalyst for dialogue between boards and investors.''
To date, say-on-pay resolutions have been introduced at more than 60 U.S. companies. Shareholders at a handful of companies have approved the measure, although none has yet to adopt the say-on-pay measure. At Activision, a video game developer and publisher, nearly 70 percent of shareholders voted for the say-on-pay resolution.
Say-on-pay legislation - The Shareholder Act on Executive Compensation - was approved by a 2-to-1 margin in the U.S. House, and Sen. Barack Obama has introduced a similar bill in the U.S. Senate.
The Bush administration opposes the legislation, arguing that Congress should not involve itself in mandating the process by which executive compensation is approved.
Twenty years ago, executives earned about 100 times what the average worker earned. Today it is more than thrice that amount.
Executives deserve to be compensated for the risks they take and the expertise they bring to companies.
But there also must be some sense of fairness - especially when times are bad.
Say-on-pay has the potential to raise and lower all boats more equitably.