Pay Disparity

2004 – Alcoa Inc. (Aluminum Company of America)

 

WHEREAS:

 

Commentators note that U.S. CEO compensation is excessive,1 an “occasion of sin” tempting CEO’s to undertake self-serving ventures2 that often degrade long-term stock performance.3  Often CEO pay is driven mainly by what other companies pay.  As a result, “bosses’ pay spirals upward,”4 creating a  “Lake Wobegon effect” (where all children have to be above average).5

 

CEO pay once bore a reasonable relationship to the pay of the average or lowest-paid worker.  Now the ratio of CEO pay to average-worker pay has skyrocketed from about 40 in 1980 to several hundred currently.6  The ratio is only 15 to 20 in Japan and Germany today.7   A huge CEO-to-worker pay gap not only degrades worker and therefore company performance but also violates common moral principles of the common good, love of neighbor, and the dignity and worth of every human being.  

 

Alcoa appears to be part of this national problem.  Business Week again gave Alcoa a ranking of 1 (the worst) in its 2003 study of CEO compensation versus stock performance.8  Another study shows Alcoa’s 2002 CEO compensation to be 1,358 times the pay of a minimum-wage worker,9 compared to the S&P500 median of 625 times.10

 

If Alcoa has an unjustifiable gap between the pay of the CEO and the lowest paid worker, the CEO and board should, as New York Fed President William J. McDonough urged, “simply reach the conclusion that executive pay is excessive and adjust it to more reasonable and justifiable levels.”11

 

RESOLVED: shareholders request the Board’s Compensation Committee to initiate a review of our company’s executive compensation policies and to make available, upon request, a report of that review by January 1, 2005 (omitting confidential information and processed at a reasonable cost). We request the report include:

 

  1. A comparison of the total compensation package of top executives and our company’s lowest paid workers in the United States in July, 1994 and July, 2004.

 

  1. An analysis of changes in the relative size of the gap between the two groups and the rationale justifying this trend.

 

  1. An evaluation of whether our top executive compensation packages (including, but not limited to, options, benefits, perks, loans and retirement agreements) are “excessive” and should be modified.

 

  1. An explanation of whether the issues of sizable layoffs or the level of pay of our lowest paid workers should result in an adjustment of executive pay to “to more reasonable and justifiable levels” as suggested by William J. McDonough above.

 

Notes:

 

  1. Conference Board, 9/17/02 (quoting Greenspan: “infectious greed”), Business Week 4/22/02 (“simply out of hand”).
  2. Edward M. Welch, “Justice In Executive Compensation”, America 5/19/03.
  3. Graef Crystal, Bloomberg 8/13/03 (“high pay destroys high performance”).
  4. Economist.com, 10/9/03, http://www.economist.com/opinion/displayStory.cfm?story_id=2121856
  5. Retired Medtronics CEO Bill George, Fortune 9/29/03.
  6. Economist.com, Executive Pay, 10/9/03
  7. “Justice In Executive Compensation,” America 5/19/03
  8. April 21, 2003, http://bwnt.businessweek.com/exec_comp/2003/index.asp
  9. AFL/CIO Executive Paywatch, www.aflcio.org
  10. Our calculations
  11. WSJ, 09/12/02 

 

Sponsors:

Lead: Catholic Equity Fund, Theodore Zimmer President; Christus Health; Srs. of Charity of Cincinnati; Srs. of St. Joseph Charitable Trust; Srs. of St. Joseph, Philadelphia; Srs. of the Holy Spirit and Mary Immaculate; Srs. of the Incarnate Word and Blessed Sacrament