DATE=04/09/02

TYPE=BACKGROUND REPORT

TITLE= EXECUTIVE PAY

NUMBER=5-51389

BYLINE=LINDA CASHDAN

DATELINE=WASHINGTON

CONTENT=

VOICED AT:

INTRO: U-S stocks fell last year, but compensation for U-S corporate executives did not. The latest figures indicate only a few company chief executives shared the financial pain endured by stock holders.

TEXT: companies that paid their chief executives according to the corporation's 2001 profit margins, mostly cut pay.

Others, says Carol Bowie of the Investor Responsibility Research Center, were "willing to pay for failure," raising chief executives' salaries, despite lower earnings and company layoffs.

The result, she says, was a 24 percent rise in overall executive compensation, in a year of recession and war.

/// BOWIE ACT ///

To the average worker, it seems patently unfair that the C-E-O should be making that much money, particularly in light (of), or in contrast to, companies that may be laying off thousands of people.

/// END ACT ///

Corporate Chiefs today, on average, make more than 400 times as much as their lowest paid employees.

Stephen Hall of Pearl Meyer and Partners, a firm that specializes in compensation issues, says earnings gap began in the late 1980s. It was then, he says, that companies decided to award chief executives stock options as compensation.

/// HALL ACT ///

That started to be used as a very popular plan right around the time that the stock market started on its biggest boom in history. And executives were in the right place at the right time, in terms of having equity participation. We're at a point now, where, I think, stock options account for something like 60 percent of compensation.

/// END ACT ///

We are also at a point, Carol Bowie says, where shareholders, the public and the press are all starting to object.

/// BOWIE ACT ///

There's no question, at this point, that investors are saying "Wait a minute! This option thing has gone quite far enough." And pressure is certainly building now in the institutional investor community to reign in the use of these option grants.

/// END ACT ///

But Stephen Hall says chief executives are like star athletes -- they perform with skills few can match, and most boards of directors are willing to pay mightily for those skills.

/// HALL ACT ///

Do I think that executive compensation levels are going to continue to go up in the future? Yes, I think they will.

/// END ACT ///

Carol Bowie is not so sure. She says efforts by the nation's pension fund investors to compel all executive stock options to be approved by company shareholders could change things. (signed)

NEB/LRC/TW