Execetives' 'greed' under attack

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Executives' 'greed' under attack

By Gilbert Chan, Sancromento Bee

June 17, 2003

CalPERS stepped up a campaign Monday to crack down on fat executive pay packages in the wake of corporate scandals and sagging investment returns.

Trustees of the $138 billion public pension fund said they want the nation's largest companies to grant their five top executives no more than 5 percent of available stock options. Companies that do so will receive CalPERS' support in proxy votes on their executive equity compensation plans.

"Executives should not be handsomely paid for simply keeping a seat warm. Compensation programs need to be performance-based," said Rob Feckner, who heads the investment committee of the 1.3 million-member California Public Employees' Retirement System.

State Treasurer Phil Angelides, a CalPERS board member, said, "We should not be sanctioning a culture of greed where a few at the top do well while the rest of the work force in the economy suffers.

"We should be endorsing a culture of broad-based success."

Angelides, a likely Democratic candidate for governor in 2006, cited studies that show improved worker productivity and higher returns to investors when companies limit executive stock options.

For instance, a successful company like Intel Corp. awards less than 2 percent of its stock options to its top executives. Such practices, Angelides said, "give workers the opportunity to participate in economic growth, and they restore a needed sense of fairness to our financial markets."

The treasurer, who also is a trustee with the $100 billion California State Teachers' Retirement System, plans to ask that pension fund to endorse similar equity compensation standards next month.

By targeting executive pay, CalPERS -- the nation's largest public employee pension fund -- hopes to set a trend in corporate governance. Its actions are widely followed by institutional investors and corporate America.

Federal regulators and major stock markets, including the New York Stock Exchange, are considering proposals allowing shareholders to vote on executive compensation issues. If those go into effect, CalPERS could gain an enormous voice in company pay proposals.

In recent years, CalPERS and other large investors have seen their investment returns shrink while executive pay continued to rise. Since hitting a peak of $172.2 billion in mid-2000, the pension fund's total assets have tumbled to about $138 billion today.

A CalPERS analysis indicated the median base salary for chief executives at S&P 500 companies rose 10.1 percent in 2001 and 4.2 percent in 2002. However, the S&P 500 recorded an 11.9 percent decline in 2001 and a 22.1 percent drop last year.

"Poorly designed compensation packages are having a disastrous impact on companies and shareholders by emphasizing short-term or self-interested behavior," said CalPERS President Sean Harrigan

CalPERS will promote its executive pay campaign on the fund's Web site by listing the top 10 to 15 best and worst corporate compensation plans. Officials will outline a compensation blueprint for corporations to follow. That includes disclosing executive contract provisions and severance packages.

CalPERS wants companies to increase the vesting period for stock options to at least four years and also establish job performance standards to help determine compensation.