Nearly 40 percent of America’s top-paid CEOs over the past 20 years were eventually booted from their job, had to pay settlements or fraud-related fines, or led firms that received taxpayer bailouts, a recent report from the Institute for Policy Studies (IPS) shows.
During this time period, the pay gap between CEOs and average American workers has also soared, according to IPS’ “Executive Excess” report.
CEOs from the biggest companies earned 354 times as much as the typical American employee in 2012. In comparison, CEOs made 195 times as much as the average worker back in 1993.
But despite record-high CEO compensation, the report noted that America’s top paid executives have added “remarkably little value to anything except their own personal portfolios.”
“This report should put an end to any remaining sense that we have ‘pay for performance’ in corporate America,” the report’s co-author Sarah Anderson said in a statement. “Without strong action from regulators, lawmakers, and shareholders, this broken CEO pay system will continue to undermine our economy.”
The Washington, D.C.-based think tank examined the performance of the 241 corporate chief executives who landed at least once on the list of America’s 25 highest-paid CEOs between 1993 and 2012. Of those individuals, 134 are still active as CEOs.
IPS' analysis found that 22 percent of the top-paid CEOs headed firms that either now cease to exist or received government bailout money following the 2008 financial crash.
For example, Lehman Brothers CEO Richard Fuld was ranked among the 25 highest-paid executives for eight consecutive years before his bank crashed in 2008, which was the largest bankruptcy in U.S. history.
According to the report, another 8 percent of those 241 CEOs lost their jobs involuntarily and received parting gifts worth a combined $1.2 billion. The average ousted CEO parting payment was about $48 million, the report found.
Eckhard Pfeiffer, who served as Compaq Computer’s CEO for seven years, enjoyed the largest golden parachute worth $416 million in severance and stock options after being fired in 1999 for poor performance. Hewlett-Packard bought Compaq in 2002.
An additional 19 top-paid CEOs cited in the report were in charge of companies that were required to pay substantial fraud-related fines and settlements. Eighteen of those CEOs were with firms that had to fork over more than $100 million in such payments, according to the report.
Enron’s Kenneth Lay, for example, made the 25 highest-paid CEOs list for four years before the energy company collapsed in an accounting scandal in 2001. Lay took home a $140 million compensation package a year before the company’s downfall. In May 2006, Lay was found guilty on 10 counts of securities fraud, among other charges. He died two months later of a heart attack before having been sentenced.
Check out this video from IPS detailing more of its "Executive Excess" findings:
Taxpayers are also subsidizing all highly-paid executives due to a corporate tax law loophole that allows corporations to deduct unlimited amounts off their income taxes for their CEOs’ performance-based pay, the report noted. This loophole cost the federal treasury $30.4 billion from 2007 to 2010, according to a recent study by the Economic Policy Institute.
The loophole in the current corporate tax law first began in 1993 when Congress capped the deductibility of certain executive pay to $1 million. There was an exception, however, for performance-based pay, including stock options, non-equity incentive plans and stock appreciation rights. As a result of the law, more executive compensation packages have been structured to meet the performance-based exception as a way to avoid paying taxes on corporate earnings.
In order to fix this “outrageous loophole,” the report’s authors called on Congress to pass two bills, the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, S.1476, and the Income Equity Act, H.R. 199, that would reduce taxpayer subsidies for excessive CEO pay.
The authors also stressed the need for the Securities and Exchange Commission to enforce the 2010 Dodd-Frank law, which requires corporations to annually disclose the pay gap between their top executives and typical employees.
Additionally, the report urges regulators to put pay-restriction guidelines in place as part of the Dodd-Frank law for executives of large financial institutions.
"Within nine months of the enactment of the 2010 Dodd-Frank law, regulators were supposed to have issued guidelines that prohibit large financial institutions from granting incentive-based compensation that 'encourages inappropriate risks,'" the report reads. “Regulators are still dragging their feet on this modest reform.”