Who takes more of a risk when they wake up in the morning and go in to work? Laborers at construction sites? Or CEOs? Statistically, the answer could hardly be any plainer. Just over 1,200 Americans, notes a new report that surfaced last week, died on the job in construction in 2007. The risk of getting killed or injured in an executive suite, by contrast, remains infinitesimally tiny.

Yet CEOs don’t just make much more than laborers — or miners or truck drivers or emergency room nurses or any other Americans who regularly face real workplace danger. CEOs actually cite the “risk” they face as a justification for their princely rewards.

In this week’s Too Much, we look at the “risks” top execs take — and the money they make. Why all this to-do about risk? Read on. We tackle that question, too.

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Remember the slimy “Swift Boat” attack on John Kerry back in 2004? The Oklahoma CEO who helped bankroll the Swift Boaters is now looking even slimier. Last week, the Associated Press named that CEO, Aubrey McClendon of natural gas giant Chesapeake Energy, the top-paid U.S. chief exec in 2008, just days after a company filing revealed that McClendon last year took home $112.1 million. Chesapeake shareholders didn't have quite as good a year. Their shares plummeted nearly 60 percent. That plummet created a bit of a problem for McClendon, too. He had borrowed heavily to buy up company stock and, in October, had to sell his shares — at a huge loss — when lenders demanded payback. But McClendon would soon receive his own personal bailout — from the Chesapeake board of directors. In December, the board gave McClendon a new contract that featured a one-time $75 million bonus and $32.7 million in new stock awards. The board also agreed to pay McClendon $12.1 million for his antique map collection. At least one major Chesapeake shareholder, the Louisiana Police Employee Retirement System, is now threatening legal action. The company, in response, is terming McClendon’s new pay deal “a carefully crafted exercise of business judgment that could not possibly support any inference of probable wrongdoing.”  

Three members of Britain’s House of Lords have just introduced legislation that would require UK companies to print, at the front of their annual reports, the ratio between CEO pay and pay for the bottom 10 percent of their workers. The legislation, says Lord Robert Gavron, aims to “shame” corporate officials who rubberstamp executive excess. One top British business editor welcomed the bill, but called for stronger action. Observed the Guardian's Deborah Hargreaves: “If the government was really serious about tackling inequality, it could impose a ratio on companies, dictating that the bosses' pay should never be more than, say, 100 times that of the lowest-paid worker.” Britain's current biggest gap between CEO and average worker pay: 790 times . . . 

Two new surveys of America’s affluent have found growing angst in some high-income households — and no sense of pain whatsoever in others. The first of the new polls released last week, the annual Phoenix Wealth Survey, found that 45 percent of Americans worth at least $1 million, not counting their residence, now worry they’ll outlive their assets. But 56 percent of the affluents in this same survey have no plans to “modify” their lifestyle. The second new survey, from American Express Publishing and the Harrison Group, polled households with between $100,000 and $5 million in “disposable income,” the poll’s label for income after mortgage payments and taxes. Just over half these households, 52 percent, fear they “could lose everything” in today’s tough times. But 23 percent have not cut back at all on the purchase of “big ticket items.”

Alexander Amosu, the London marketer known as the “bling king,” has a new “big ticket” for that no-worry 23 percent. Amosu is now hawking the world’s most expensive suit. The price: $102,000. The fabric: a mix of vicuna and something called “qiviuk,” an exotic wool from the Arctic muskox. The accents: nine buttons of “18-karat gold and pave-set diamond.” The suit takes 80 hours to make. All buyers, as a “gift,” will get a one-hour private jet ride — plus a year of free wealth-management and 24-hour concierge service . . .

A victory — of sorts — for Americans who worry about grand concentrations of inherited wealth. Last week, Congress okayed a budget resolution for 2010 that turns thumbs down on a Senate move to gut the federal estate tax. Midway through April, the Senate had voted to chop the estate tax on couples from the current 45 percent tax on fortunes over $7 million to 35 percent on fortunes over $20 million. The new budget retains the current tax level. But this level freezes into place the estate tax cuts enacted under George W. Bush. At this Bush level, the Tax Policy Center notes, the estates of the super rich actually owe, after deductions, a tax of less than 20 percent. Rep. Jim McDermott from Washington State is proposing to change that. His recently introduced Sensible Estate Tax Act would exempt a couple's first $4 million from estate tax and subject fortunes over $10 million to a 55 percent tax rate.

Quote of the Week

“Concentrated financial power often leads to concentrated political power; if you have a lot of cash, one of the most efficient uses of it to maximize profits is to petition the government to change the rules in your favor.” James Kwak, The Need for New Antitrust Laws, Baseline Scenario, May 3, 2009

New Wisdom
on Wealth

Dan Olson, CEO pay proposal is deja vu for Sabo, Minnesota Public Radio, broadcast April 27, 2009. The first lawmaker in Congress to push for a real limit on CEO pay reflects back on his original proposal.

Jonathan Zimmerman, No love of the common man, Philadelphia Inquirer, April 30, 2009. An NYU historian with a fascinating take on Glenn Beck, Fox News, and economic inequality.

Matt Birkbeck, A Yankee Stadium built for the super rich, Morning Call (Allentown, Pa.), May 3, 2009. The ultimate symbol of America's bankrupt plutocracy?

The 'Risky' Business in Executive Suites

Top execs, throughout Corporate America, love to think of themselves as risk takers. Ordinary mortals crave the security that comes with regular paychecks. Not executives. The regular salary checks they get make up only a minor share of their total compensation. Most executive pay comes, as executives and their cheerleaders like to note, “at risk” — in the form of stock option awards and other incentives.

And that “risk” keeps rising. Back in 1992, notes a new study by Stephen O’Byrne, a pay analyst with Shareholder Value Advisors Inc., the five top execs at major U.S. companies had 48 percent of their pay “at risk.” Last year, these execs faced “risk” on nearly two-thirds — 65 percent — of their pay.

For tolerating this increasing “risk,” observes O’Byrne, top executives have been “richly rewarded.” These rewards, to be sure, do seem to be shrinking of late. Last week, the Associated Press and USA Today both released new surveys that showed 2008 CEO pay down 7 percent from 2007.

Even so, cautions USA Today, “don't go looking for CEOs in bread lines just yet.” The reason: Corporate boards have been busy “creating ripe conditions for huge potential paydays.” Boardroom decision makers, agrees AP, are  “setting CEOs up for a potential windfall.”

“Potential”? Guaranteed might be the more appropriate word. Corporate boards and their CEOs have co-created an approach to “risk” that makes top-dollar executive earnings a virtual lock no matter how well or poorly companies actually “perform” in the marketplace.

According to boardroom theory, of course, stock options and other executive incentives aren’t supposed to guarantee executives anything. Options, the corporate line goes, only reward executives who deliver for shareholders.

And this boardroom theory, at first glance, certainly appears reasonable enough. An executive gets an option to buy company stock a few years down the road at the stock’s current price. If the stock’s share price rises, the executive can down the road exercise that option, buy the stock at the old low price, and then turn around and sell it at the new — and higher — market price.

Executive and shareholder, under this scenario, both win. The executive has “performed” and been “rewarded.”

But this theory only truly aligns “reward” with “performance” — notes Stephen O’Byrne of Shareholder Value Advisors — if companies limit “their incentive compensation to an annual stock grant of a fixed number of shares.”

Here’s why. Imagine yourself a newly hired CEO granted an option to buy a million company shares at $50 each. A year goes by. Your company’s share price has dropped to $25. Your options have gone “underwater.” They hold no value. But you’re not fretting — because your board of directors has just granted you a new option to buy 2 million shares at the now current $25 price.

Another year passes. Your share price has bumped up to $30. Your first batch of options remains worthless. But your second batch — the options granted at $25 — can now deliver you a $4 million personal profit. Not bad for an executive whose company share price has sunk from $50 to $30.

How often do corporate boards engage in this sort of behavior? Boards regularly bestow on their execs annual option awards, Stephen O’Byrne’s new study shows, and rarely keep the options to a fixed number.

O'Byrne examined executive pay records for 2,618 companies from 1992 through 2008. In all, he parsed out 95,476 “executive-years” of compensation data — and found 55,002 cases where companies had granted executives option grants in three consecutive years. Corporate boards kept these grants to a “fixed number of shares” less than 5 percent of the time.

And this option gamesmanship is roaring along in 2009. One beneficiary: James Wells, the CEO of SunTrust Banks. Back in February 2008, SunTrust granted Wells an option to buy 250,000 shares at $65. By February 2009, SunTrust shares had swooned to about $9 a share. The SunTrust board’s reaction? Directors gave Wells an option to buy another 1.1 million shares at the $9.

That decision, not surprisingly, caused a little ruckus among shareholders. Wells agreed to accept “only” half the 1.1 million-share option grant. SunTrust shares are currently selling at about $15. The bottom line for Wells? He’s now sitting on a personal $3 million option profit for managing SunTrust through a period of time when the bank's shares lost 77 percent of their value.

Or take American Express CEO Kenneth Chenault. This January, American Express granted Chenault 1.2 million options at just under $17 a share. The company's shares, at one point in 2008, had been trading at over $49.

Since January, American Express shares have nudged up to $25. The gain for Chenault’s personal portfolio: $10.2 million. Chenault, notes USA Today, will continue to gain $1.2 million for every $1 that American Express shares rise. If the shares get back to last year’s $49, he’ll clear $39 million on the stock options American Express dropped on him in January.

Most of America’s CEOs love to play golf. Corporate boards, for their part, love to hand out “mulligans,” executive suite do-overs. A company’s share price down? If you’re the CEO, no need to worry. Your thoughtful board will give you a new batch of options, all exercisable at the current low share price.

And if share prices sink even lower next year, your board will give you still another batch of option incentives, all exercisable at an even lower price. Your board, in effect, will keep lowering the performance bar until it finds a height you can jump over — and win the windfall that is your due.

So where’s the “risk” in all this? Corporate boards and corporate execs do, in fact, have one reason to worry. The rest of us, after all, may one day wise up to the “risk” racket they've all been running.

Lots of Risk, Not Much Reward

Death on the Job: The Toll of Neglect. A National and State-By-State Profile of Worker Safety and Health in the United States. 18th Edition. AFL-CIO. Washington, D.C., April 2009.

Health news, last week’s uproar over swine flu reminded us, can most definitely grab us by the throat and force us to pay attention. Maybe someday the headlines will force us to focus, as a nation, on the ongoing carnage in America’s workplaces. But not this year. Workers Memorial Day, the day set aside to remember Americans killed and injured on the job, came and went last week virtually unnoticed.

And that reality virtually ensures another year of avoidable deaths. Lots of them. In 2007, the latest year with numbers available from the federal government, 5,657 workers died on the job. Over 4 million other working men and women suffered injuries at their workplaces or caught an illness.

These numbers, explains this latest Death on the Job, the labor movement’s annual job health compendium, actually understate the on-the-job health risks that confront America's workers. The true toll, various academic investigations have estimated, runs 8 to 12 million injuries and illnesses a year.

But the real scandal remains not these numbers, but how precious little federal and state officials are doing to safeguard the shops and offices where Americans work. The nation last year had 2,000 or so federal and state inspectors — and about 8 million workplaces to inspect.

At current staffing levels, Death on the Job points out, the federal Occupational Safety and Health Administration would need “137 years to inspect each workplace under its jurisdiction just once.”

Interestingly, OSHA’s staffing peak came back in 1980. OSHA then had 14.9 inspectors per million workers. The latest ratio: 6.4 inspectors per million workers, the worst figure in the agency’s history.

Inspectors have essentially been vanishing from America’s workplaces almost as fast as rewards at the top of the corporate ladder have been climbing. That’s likely no coincidence. Ronald Reagan’s 1980 election unleashed political and economic dynamics that jumpstarted both executive pay and OSHA's decline.

And both these phenomena, today, continue to reinforce each other. The prospect of grabbing ever-greater windfalls gives top execs a powerful incentive to take shortcuts that endanger worker health and safety — and lobby against federal and state rules and regulations that could makes workplaces safer.

Existing rules and regs have, as a result, become so pitifully weak that a company that commits a safety violation serious enough to result in a worker’s death now pays a penalty that averages all of $921.

Monster rewards, in sum, give executives an incentive to run unsafe companies. Meager penalties give them no reason to reconsider their recklessness.

The lesson in all this? If we want our workplaces to be less dangerous, we may first need our corporations to be less unequal.

Stat of the Week

In the deeply troubled economic year of 2008, notes the annual AP CEO pay breakdown released last week, four of every five chief executives of major U.S. companies pocketed a cash bonus. Over those same 12 months, the AP notes, the share prices of the companies these executives ran dropped an average 36 percent. The earnings of these companies, for the same period, fell 31 percent.

Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.