Commentary—

CEO Pay Scales Raise State ‘Average’

By William A. Collins

Super sal’ries,

Lead astray;

The way we figure,

Average pay.

For several years now, “median” pay and benefits in Connecticut have been sagging. This has been largely due to jobs moving away, the trimming of health care, pensions, and other benefits, and the arrival of immigrants who undercut pay scales for certain work. That median, as you know, refers to the person in the very middle of the list of all workers in the state, arrayed by how much they make.

“Average” pay, conversely, has been doing just fine. This is the total of everyone’s pay divided by the number of workers. It’s a very misleading number. It has nothing to do with that poor “median” guy in the middle who’s struggling, often unsuccessfully, to keep up with inflation. Rather it has everything to do with corporate executives whose embarrassingly high pay continues to zoom. They foul up the average.

Take George David, CEO of United Technologies (UTC). A recent study found that from 2002 to 2005 he was paid (one hesitates to say “earned”) $200 million. That’s $40 million a year. The study described him as the highest-paid CEO in the defense industry. While UTC officials took umbrage at being called a defense industry, since less than a third of their revenue comes from war machines, they didn’t dispute the numbers.

And David isn’t the only one raking it in. You had probably guessed that. H. Edward Hanway at CIGNA had a good year too. What with exercising options and stuff, he took home $29 million, on a modest base salary of $1 million. That should help make the mortgage.

Indeed our state is blessed in claiming quite a few of these supersalaried executives. Imagine how droopy our average income would look without them. It might be a lot closer to the median, where thousands of folks really do struggle to make the mortgage. This is why presidents, governors, and members of Congress always prefer to focus on the average rather than on the median income of their constituents. It sounds higher. It deludes voters into thinking that on these politicians’ watch, the state and nation are doing better economically than they really are.

Not surprisingly, many CEOs are also personally sensitive about all this pay. Therefore their companies try to obscure how much they actually get. Never do they list the grand total of compensation, and many construct euphemistic terms to deflect a layman’s attempt to find out. Fortunately, federal securities law makes them list everything in their stockholder reports, so that clever researchers who know the meaning of performance or “phantom” stock can eventually piece it all together.

Another cute wrinkle that greedy CEOs fancy is to hire secret “independent” analysts to make “objective” assessments of what their pay ought to be. One of those analysts, Hewitt Associates, has a big new building here in town. They’re doing swell, thanks. They offer all sorts of personnel consulting and management services to big companies. By chance, they provide a lot of these services to Verizon Communications, and insiders there report that they also were the ones who analyzed that CEO’s salary.

Well surprise, surprise. Their “objective” analysis said that he ought to get a lot more money, nearly double the previous year. This while company stock slumped, pensions fell, and their bonds weakened. None dare call it “corruption.”

Unfortunately, this domestic epidemic of greed is spreading to Europe and Asia as well, heretofore bastions of economic equity. Though the United States has always been a great exporter of goods and culture, now it appears that avarice has been added to war as one of our most pernicious outgoing products.

(Columnist William A. Collins is a former state representative and a former mayor of Norwalk.)