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Outsourcing CEO get pay hikes Original Source Link: (May no longer be active)
http://www.forbes.com/work/management/2004/08/31/cx_da_0831topnews.htmlhttp://www.forbes.com/work/management/2004/08/31/cx_da_0831topnews.html
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Outsourcing CEOs Get Big Pay Hikes
Dan Ackman, 08.31.04, 9:25 AM ET
NEW YORK - U.S. companies that outsourced the most jobs in 2003 also offered well-above average pay increases to their chief executives, according to a new study released this morning. Companies that made outsized political contributions to either the Democratic or the Republican parties also paid their CEOs unusually well, the study finds.
The average CEO compensation at the 50 firms outsourcing the most service jobs increased by 46% in 2003. That increase compares to an average hike of 9% for CEOs at 365 of the largest U.S. companies, according to a report by the Institute for Policy Studies, a non-profit that focuses on progressive research, and United for a Fair Economy, best known for its opposition to the repeal of the federal estate tax.
The study says that CEOs of the top outsourcing companies earned an average of $10.4 million in 2003, 28% more than the average CEO compensation of $8.1 million. These companies tended to be banks with call centers--such as Citigroup (nyse: C - news - people ), Bank of America (nyse: BAC - news - people ) and Morgan Stanley (nyse: MWD - news - people )--or technology companies with research facilities or call centers outside the U.S.--such as Oracle (nasdaq: ORCL - news - people ), Cognizant Technology Solutions and Intuit (nasdaq: INTU - news - people ).
The study does not make the case that there is a causal relationship between outsourcing or political activism and CEO pay. However, it does claim a connection between contributions and at least one issue, the current effort in Congress to block rules that would require corporations to report all stock option grants as expenses in their financial statements.
The overall 9% pay increase is itself far in excess of pay increases enjoyed by Americans in general. For Americans overall, personal incomes rose by 3.2% between 2002 and 2003, according to the U.S. Commerce Department. After two years of narrowing, the CEO-to-worker wage gap is rising again. The CEO-pay-to-worker-pay ratio reached 301:1 in 2003, up from 282:1 in 2002, the study says.
Companies that gave large sums to political parties also tended to give outsize rewards to the boss. CEOs of the 69 companies that sponsored this summer's Democratic and Republican National Conventions saw their pay rise by 52% in 2003, far outpacing their fellow CEOs. (Elections laws generally bar corporations from giving money to candidates, though they may sponsor conventions.) Similarly, the 38 CEOs who have personally raised at least $100,000 for either the George W. Bush or John Kerry presidential campaigns (the list is heavily weighted for Bush) earned an average of $15.2 million in 2003, 88% more than the average large company CEO, the study says.
Major political sponsors included Altria (nyse: MO - news - people ) and American International Group (nyse: AIG - news - people ), both of which sponsored the conventions of both major parties. Financial firms were again well represented among sponsors. Goldman Sachs (nyse: GS - news - people ) and Washington Group International sponsored the Democratic convention; Merrill Lynch (nyse: MER - news - people ) and American Express (nyse: AXP - news - people ) sponsored the Republican convention. Companies headquartered in either Boston or New York, where the conventions were held are also prominent on the sponsor lists.
The study makes no claim that there is cause and effect between outsourcing jobs and big CEO pay packages. Some of the companies on the list of outsourcers are unusually large or profitable, so their executives may have simply profited the most from stock options, which is how one CEO typically earns more than the next. It may also be the case that companies on the cutting edge of technological change tend to outsource more to India where there is an abundance of highly skilled technology workers, as well as less skilled but eager call center workers. It is also the case that the extent of outsourcing tends to be overstated, something that the study seems to concede.
Whether contributing money to political parties (whether by the companies themselves to conventions or by company executives to candidates) actually increases company profits or CEO pay is an open question, too. On one hand, executives may be pursuing their self-interest. On the other hand, they may have political beliefs distinct from personal gain.
Sometimes there is a stark division within a single firm. Goldman Sachs CEO Henry Paulson, Jr. appears on the study's list of top donors to Bush. But his former co-CEO Jon Corzine is a Democrat and a U.S. Senator from New Jersey. Another former Goldman chief, Robert Rubin, was Secretary of the Treasury under Bill Clinton. Goldman paid to sponsor the Democratic Convention in Boston, even though it is based in New York.
Pfizer (nyse: PFE - news - people ) CEO Hank McKinnell raised money for Bush, but his New York-based company hedged its bets by helping to foot the bill for both party's conventions.
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