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Institute for Policy Studies

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  • Released August 26, 2002
Global Economy » Report

Executive Excess 2002: CEOs Cook the Books, Skewer the Rest of Us

The ninth annual CEO compensation survey.

What a difference a year makes. Last year, Cisco was No. 2 on Fortune’s list of Most Admired Companies. Now Cisco’s CEO is on Fortune’s list of the greediest executives at America’s worst performing companies. Enron, the year 2000 most-admired company in the categories of “innovativeness” and “quality of management,” was simply the first emperor without clothes to be exposed.

Not long ago, CEOs were glorified for their ability to create wealth and were featured as the cover boys of America’s leading magazines. No more. These days, after millions have lost their jobs and retirement savings, many would like to see CEOs featured instead on the wanted posters at their neighborhood Post Office.

Tales of CEO greed in the mainstream business pages read like tabloid stories. Former Tyco International CEO Dennis Kozlowski, who once single-handedly took credit for the creation of $37 billion of shareholder wealth, resigned in disgrace after being indicted on charges of tax evasion. On top of over $300 million in salary, cashed-in stock options and other compensation between 1998 and 2001, Tyco gave Kozlowski more than $135 million for imperial living. In 1998, Kozlowski bought a 15,000-square-foot waterfront mansion in Florida, using a $19 million, no-interest loan from Tyco. The company later forgave the loan as part of a “special bonus” program. Last summer, reports CNN/Money,“Tyco paid for half of a $2.1 million trip to the Italian island of Sardinia, the highlight of which was a 40th birthday party for Kozlowski’s wife, Karen, that included a performance by singer Jimmy Buffett.” There’s more: Tyco paid for Kozlowski’s New York apartment and forgave the $25 million loan it gave him to furnish it with art, antiques and a $6,000 gold-and-burgundy shower curtain.

While Kozlowski was showering in gilded luxury, shareholders took a bath and the jobs of 18,400 Tyco employees laid off since January 2001 went down the drain. Jimmy Cantey was laid off on four days notice after 29 years at a Boca Raton, Florida company, which Tyco took over a year ago. As reported by the Fort Lauderdale Sun-Sentinel, Cantey was “the first black technician hired at Sensormatic Electronics, starting in 1972. He remained with the company that makes anti-theft and security devices, received two patent awards and worked his way up the corporate ladder to supervisor, then engineering specialist.”

Now at age 51, “losing his job threatens to unravel the security and middle-class American dream that took this South Florida family a lifetime of hard work, saving and doing without to build.”

“Pay for performance,” supposedly the guiding principle of executive compensation in the 1990s, now lies in tattered shreds. Rather than aligning the interests of executives and investors as promised, CEO pay packages — bloated by stock options — led to ever more aggressive accounting techniques, making many company’s earnings statements works of fiction masquerading as fact.

This CEO compensation report, our ninth annual, examines the links between the corporate scandals and executive pay.7 Our findings suggest that the current approach to compensation encourages excessive risk-taking and the widespread adoption of aggressive accounting techniques that blur the truth and overstate earnings, but boost CEO pay. The report analyzes the role of perverse pay incentives in the current crisis. It then examines the corporate lobby working to ward off pay reform and offers recommendations for action to rein in excessive CEO pay and strengthen corporate governance.

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