American Eagle Outfitters paid its CEO a whopping $15.3 million in 2006, according to a May 1st proxy statement, or 668 times the median annual earnings for a retail salesperson.
The company’s board came up with that figure by setting executive compensation at the 75th percentile – 25 points above the median – of the “peer group” of comparison companies the board hand-picked, which included much larger companies such as The Gap and Limited Brands.
We know this only because the company was forced to issue its May 1, 2007 proxy statement under new Securities and Exchange Commission rules, which contain critical disclosure provisions that will aid shareholders and workers in challenging exorbitant executive pay levels.
Companies must now:
- Reveal all elements of executive compensation, including some that companies routinely concealed in the past, and
- Spell out in “plain English” how the board sets executive compensation and the performance goals executives must meet to earn additional pay.
For the first time, workers fighting for decent wages and basic rights at U.S. companies can begin to get a clear look at total compensation for the executives who hold all the decision-making power.
No more hiding the true cost of executive pay. No more concealing the so-called “peer group” companies used for comparison in setting executive pay that aren’t truly comparable companies.
And also now available for public consumption: the often baseless “pay for performance” justifications for outrageous levels of CEO compensation. Citigroup’s CEO collected $26 million in 2006, including a $13.2 million “bonus,” despite the fact that profits plunged more than 12 percent and the company laid off thousands of workers.
The SEC has already warned companies that the new proxy statements must be detailed and readily understandable. If they are not, shareholders and workers can ask the SEC to review the information. The SEC is already evaluating a broad sample of the new proxy statements for compliance.
They’re finally beginning to ask the right questions. We’ll be watching to see if the new rules result in more transparency and sensible, of-this-world CEO salaries.
Greg Tarpinian is the Executive Director of Change to Win.