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"We're Back to Serfs and Royalty"

In The Jungle, Upton Sinclair's stark portrait of Chicago's meat-packing industry at the end of the 19th century, "splitters" earned some of the highest wages in the slaughterhouse. These men, Sinclair wrote, "did not a thing all day except chop hogs down the middle" -- for 50 cents an hour.

Fast forward 100 years or so, and the typical meatpacker earns $9.13 an hour, according to the Bureau of Labor Statistics, an annual salary of $18,980. The average hourly worker does nearly one-third better: $24,649. But if you really want to see the difference between hamburger and filet mignon, compare the average worker's pay to that of CEOs at 365 of the largest public companies. These denizens of one of the last nearly all-male enclaves on earth averaged $13.1 million in 2000, roughly 531 times more than their average employees.

Granted, running a big company requires more skill, or at least more subtlety, than killing pigs. But the huge disparity between the compensation of CEOs and the people who really make most companies function is starting to raise questions of fairness. For instance, look at how CEO pay has skyrocketed -- by 434% since 1991, according to BusinessWeek's annual survey of executive compensation. Meantime, the paycheck of the typical worker grew only 34%.

GOOD TIMING. "We're back to serfs and royalty in the Middle Ages," declares Edward Lawler, professor of management at the University of Southern California's Marshall School of Business. And that's before the passage of President Bush's tax-cut plan, which would widen the advantage of the upper crust on an aftertax basis.

To some extent, of course, top execs have prospered so much simply because they happened to have the right job at the right time. They benefited from a roaring New Economy stock market that for years defied logic and valued many companies at indefensibly high levels. According to executive-compensation consultancy Pearl Meyer & Partners, 60% of CEO pay now comes in the form of stock options, up from 25% in the mid '80s. So dependent did exec pay become on mindless market momentum that after the bubble burst, total remuneration for CEOs rose only 6.3% in 2000, compared to 36% in 1998, according to BusinessWeek's latest survey.

Yet though Wall Street's woes continue, don't expect CEOs to share the pain of shareholders for long, Lawler says, or of the employees they're laying off. "Boards will be under pressure to protect their CEOs' income," he adds. "We'll see a return to cash and grants of restricted stock rather than options." Restricted stock are outright grants of company stock, which guarantee some net income. Stock options, which give a person the right to buy shares at a given price sometime in the future, can become worthless if the stock tanks.

AMERICA'S "SCORECARD." There's more to why execs earn so much than unbridled greed and compliant boards. After two decades of nearly uninterrupted economic expansion in the U.S., wealth is in vogue. If baseball's Alex Rodriguez is worth a $252 million, 10-year contract, who's to say that Citigroup CEO Sanford Weill isn't worth his $224 million a year? And if Julia Roberts can command $20 million a motion picture, why shouldn't Disney's Michael Eisner be worth his $72 million in salary and long-term compensation last year? "Money is our scorecard to gauge someone's success," says Thomas Li-Ping Tang, professor of management at Middle Tennessee State University. "The higher the score, the better."

That still doesn't answer the question: Even if a CEO is a brilliant strategist, an inspiring leader, and the darling of Wall Street, what makes him worth 531 times his average employee instead of 50 or 100 or 200 times? Only in the court of public opinion are such questions raised, often by gadflies whose impact is small. For instance, the AFL-CIO publishes a Web site, called Executive PayWatch, where visitors can plug in their salaries and see how they stack up against the compensation of CEOs at 1,500 of the largest public companies as well as that of AFL-CIO president John Sweeney.

This month, PayWatch added a new feature highlighting union-sponsored shareholder resolutions aimed at curbing executive pay at Conseco, Sprint, and Bank of America. Site visitors can launch e-mails to their state treasurers, urging them to vote for the resolutions via shares they own in pension funds of those companies. Getting results is still fairly rare. Of some 45 shareholder proposals related to executive pay that have been submitted by public and union pension funds this year, only a handful so far have led to changes at the targeted corporations.

10% BACKING. Indeed, victories, when they come, are likely to be of the magnitude won by Marnie Thompson of Greensboro, N.C. Last fall, she submitted a shareholder resolution about out-of-whack pay scales at Jefferson Pilot Corp., a holding company in Greensboro with subsidiaries in the insurance business. Thompson, who had never filed a proposal before, crafted the resolution with the help of Responsible Wealth, a nonprofit group whose 500 members are in the top 5% income bracket and are concerned about the wealth gap in the U.S.

For the past three years, Responsible Wealth members have submitted shareholder resolutions on executive pay at such companies as Disney, Coca-Cola, and Exxon Mobil. On average, roughly 10% of shareholders at these companies have voted in favor of the group's proposals to curb compensation, says Responsible Wealth

co-director Scott Klinger.

Thompson's goal at Jefferson Pilot was simple: Reduce the ratio between the CEO's pay and that of the company's lowest-paid employees. According to ExecuComp, produced by Standard & Poor's Institutional Market Services, a division of The McGraw-Hill Companies, Jefferson Pilot chairman and CEO David Stonecipher netted $2.9 million in total compensation in 2000. "Jefferson Pilot is a well-managed company, and I know that [its management] isn't exorbitantly paid according to the industry standard," Thompson says. "But something has gone very wrong with

the industry standard."

"SMALL ADJUSTMENT." Jefferson Pilot shareholders won't get a chance to vote on Thompson's proposal -- she withdrew it after the issue was resolved through meetings with company officials. According to a Feb. 2 letter sent to Thompson by Jefferson Pilot General Counsel John D. Hopkins, a compensation review led the company to ask its food service, security, and cleaning services vendors to adjust the wages for all full-time employees that supply services to Jefferson Pilot so that each will earn at least the federal poverty guideline for a family of four: $8.20 per hour plus benefits.

The letter also stated that a "small adjustment" had been made in the pay of "a few entry-level JP employees" -- even though Corporate Affairs Vice-President Paul Mason says no JP staffers had been affected. Mason confirms that the company had spoken with its vendors and that compensation had increased for about 75 subcontracted workers, but he declined to comment on how much vendors had raised wages.

Thompson is satisfied with the outcome: "I feel good having raised the wages for folks I have never met and probably never will," she says. "I knew that I could have picked a worse company to go after, but they were in my town, and I care about my town."

RISING RESENTMENT? Most people on the shop floor don't begrudge their CEO a princely sum when times are good, experts say. "When Michael Jordan was playing for the Bulls, no one on the team resented that he was making more money than they did. They wouldn't have won championship rings without him," says Michael Maccoby, a management consultant and former Harvard professor. "If a company is doing well, you won't have resentment. I don't think anyone at General Electric resents what [CEO Jack] Welch makes."

Maybe not. But let the pay that CEOs earn keep rising -- and watch the economy continue to sour -- and execs might well remember the fate that has awaited royalty in the past. By Jennifer Gill in New York

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