Shareholders Revolt Against Bloated CEO Pay

By Sam Pizzigati, Too Much: A Commentary on Excess and Inequality. Posted May 6, 2008.

Last month, at a Hilton Hotel ballroom in New York, things turned ugly for some of Wall Street’s most eminent power suits. The occasion: the annual meeting of Citigroup, the financial colossus that last year wrote off $20.4 billion in subprime-related losses — and has so far this year lost another $9.1 billion.

On hand for the annual meeting: over a thousand angry Citi shareholders. They packed the ballroom. And they wanted answers — about the remarkably cushy rewards that continue to flow to Citigroup’s top executives.

How cushy? In January, just a month after Citi's CEO through the worst of the mortgage mess left the company with an exit package worth $42 million, Citigroup’s board of directors awarded that CEO's chief financial officer, Gary Crittenden, a $12 million “retention bonus.”

The company’s current CEO, Vikram Pandit, did his best at the Citi annual meeting to justify this sublimely generous board gesture. Citigroup, he noted, was operating in a “competitive” environment and needed to pay well to “retain” staff.

The shareholders didn’t buy that explanation — or much of anything else Citigroup executives had to say. They jeered. They booed. They laughed sarcastically. And they cheered shareholders who lined up at the ballroom microphones to vent their outrage.

“Where can you get a job where you do nothing to earn your money and get paid in advance?” asked one irate shareholder. “Citigroup!”

Added another: “There is something wrong in this company.”

But that shareholder didn’t quite have it right. There’s something deeply wrong in all of Corporate America, not just Citigroup. Year after year, through good years and bad, America’s top executives continue to pull in compensation packages that fly in the face of reason — and slap in the face everyone who doesn't sit in an executive suite.

How big a slap? Forbes magazine has just released its annual CEO pay figures for 2007. The top execs at the nation’s 500 largest companies, says Forbes, averaged $12.8 million last year. They took home nearly a quarter million dollars a week, 407 times the weekly pay average Americans were making at year’s end.

Such monstrously large disparities, researchers have made plain over recent years, can have disastrous consequences for organizational effectiveness. Some analysts have even endeavored to get this message across to CEOs themselves.

“Top-level executives,” says one of these analysts, Dr. Ken Siegel, a global managerial psychologist, “are living in an unconscionable fog.”

Wrapped in this fog, Siegel argued last month in a business press commentary, executives don’t see the “deep employee disengagement and pervasive employee cynicism and hostility” that outrageously lavish CEO pay so consistently generates.

Is anyone in the business world listening to this sort of critique?

Some business reformers are indeed trying to break down America's current corporate caste structure. Many of them will be gathering in New York City next October for a national conference sponsored by WorldBlu, an energetic group that’s endeavoring to promote the goal of workplace democracy.

This WorldBlu Live conference will be showcasing the work of executives like Rob Everts, the co-director of Equal Exchange, a Massachusetts-based natural-foods company that has been registering healthy earnings for over two decades via strategies that actively involve employees in all key decisions.

Equal Exchange, says Everts, has “built a workplace where people are respected,” where “profit goes to build the mission, not line CEO pockets.”

And nobody’s jeering.

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Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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