Mind the Pay Gap

Naturally, the boss gets higher pay than the underlings. But 531 times as much? That’s the average multiple for the chief executive officers of American corporations, according to a survey by the research firm Towers Perrin. It was only about 40 in 1980. In Britain, the multiple is only 25 times. In France, it’s 16. In Germany, 11. In Japan, 10.

Daniel J. Steininger, chairman of the Milwaukee-based Catholic Funds group, who keeps an eye on corporate governance, has decided to do something about it. He sent companies proposed resolutions about high executive pay and asked them to include them in the proxy materials they soon will send out to their shareholders. If they refuse, the U.S. Securities and Exchange Commission can require them to do so. He has targeted Delta Air Lines, International Paper, MetLife, Cendant, Alcoa, Honeywell, J.P. Morgan, Time Warner and El Paso Corp.

Resolutions sent to the first three ask for a CEO pay limit of 100 times the average non-managerial employee’s pay. The other resolutions ask merely for the ratio of the CEO’s total compensation to that of the lowest-paid worker.

Mr. Steininger’s office says that International Paper has called the proposed resolution “misleading” and said it relates to the company’s “ordinary business operations.” Both objections are grounds for refusal under SEC rules. The agency is weighing arguments and considering whether or not to require the company to present the resolution for a shareholder vote.

The proposed resolution says that CEO pay is often excessive and that “International Paper appears to be part of the problem.” It quotes the AFL-CIO’s Executive Paywatch as reporting that the CEO’s compensation in 2002 was 351 times the pay of the average American worker. The report lists the CEO, John T. Dillon, as receiving $8,965,055 in 2002 in total compensation including stock option grants from the company. An International Paper spokeswoman says the company does not comment to the press about compensation matters. She said the company has a few more than 2,000 employees in Maine.

Executive pay has obviously skyrocketed, supporting the complaint that the rich are getting richer and the poor are getting poorer. Mr. Steininger’s is an admirable effort to permit shareholders to decide whether the high pay of their chief executives is justified.