Shareholders Press GE on "Out of Control" CEO pay

Press Advisory
For Immediate Release - April 20, 1999
Contact:Betsy Leondar-Wright
(617) 423-2148 x113

Shareholders Press GE on "Out of Control" CEO pay, Threaten to Bring Bad Things to Light

GE shareholders are challenging the company's Board of Directors to set a maximum ratio between the pay of the CEO and that of the lowest-paid worker in the company, citing General Electric CEO Jack Welch's dramatically rising compensation and the elimination of 128,000 jobs during his 17-year tenure.

GE shareholders will vote Wednesday April 21 in Cleveland, Ohio, on a shareholder resolution, which is part of a national campaign addressing the wage gap profiled in the April 8 Wall Street Journal. Members and supporters of Responsible Wealth, a project of United for a Fair Economy, have introduced shareholder resolutions about wage inequities between CEOs and average workers at nine U.S. corporations so far this year.

Scott Klinger, Project Director of Responsible Wealth, will present the resolution on behalf of five GE shareholders who are also Responsible Wealth members. (See statement and resolution attached.)

Klinger's presentation to shareholders will cite Business Week's national overview of CEO pay, which lists GE CEO Jack Welch's $83.6 million in compensation as the sixth highest among American CEOs and eight times that of the average CEO. Klinger will also note that Business Week called Welch the fifth worst CEO in terms of delivering value to shareholders relative to the size of his pay package.

Resolution proponents were prompted to act by the threat that the growing wage gap poses to working Americans and to the nation's economic well-being. According to Business Week, CEOs now earn an astounding 419 times the pay of average blue-collar workers, up from 42 times as recently as 1980.

In addition to GE, the Responsible Wealth resolutions have been introduced at AlliedSignal, AT&T, BankAmerica, BankBoston, Citigroup, Computer Associates, Huffy, and R.R. Donnelley. Some of the resolutions ask the company to set a reasonable ratio between CEO pay and the lowest-paid full-time employee in the company. Others ask the company to report on this ratio. One resolution asked the company to conduct a pay equity study by race and gender.

The first of the resolutions, on gender and race pay equity, at the Chicago-based R.R. Donnelley & Sons on March 25, garnered a surprising 16.2% vote, or 13 million shares. This is a very strong showing given voting procedures that favor management positions on proxy resolutions. According to the Investor Responsibility Research Center, shareholder resolutions of this type averaged 9.2% of the vote in 1998.

"Responsible Wealth is on our way to generating 100 million votes this year for greater shared prosperity," Klinger said. í¬Many Americans now see CEO pay as out of control. Even Federal Reserve Chairman Alan Greenspan has publicly criticized such lavish compensation and severance packages.í®

United for a Fair Economy (UFE) is a national nonprofit organization that spotlights growing economic inequality and advocates shared prosperity. UFE recently published Shifting Fortunes: The Perils of the Growing American Wealth Gap.

Responsible Wealth, a project of UFE, is a growing network of over 400 business people, investors and affluent individuals in the top 5 percent of income and wealth working together to reverse the trend toward growing economic inequality.

Remarks of Scott Klinger at General Electric Annual Meeting -- April 21, 1999

Good morning, my name is Scott Klinger. I am the Project Director of Responsible Wealth, a nationwide network of business leaders and investors who have joined together to address the growing economic divide in America. I am here this morning on behalf of the five Responsible Wealth members who have filed this resolution with General Electric.

There is growing belief in America that executive compensation is out of control. Earlier this year, Federal Reserve Chairman Alan Greenspan testified before Congress that shareholders were wasting their money on lucrative CEO compensation and severance packages. Mr. Greenspan concluded, however, that there was little the government could do to address this concern. While the government's hands may be tied, shareholders' hands are not.

Our company's CEO is among the most generously compensated CEOs in America. Business Week has recently reported that Mr. Welch's 1998 total compensation was $83.6 million, the sixth highest among American CEOs and eight times that of the average CEO. In the same article Business Week also listed Mr. Welch as the fifth worst CEO in terms of delivering value to shareholders relative to the size of his pay package.

In 1998, the average large company American CEO's compensation was 419 times that of the average manufacturing worker, up from 326 times last year and 42 times as recently as 1980, according to Business Week magazine. The picture looks far different within General Electric. An hour's drive from General Electric's corporate headquarters, the Empire State Building rises 1,454 feet above the New York City skyline. If Mr. Welch's $83 million total compensation in 1998 were represented by the height of the Empire State Building, how tall would the buildings represented by other GE workers be? The typical factory worker, earning $40,000 a year, would be represented by a building just eight inches tall. A well-compensated General Electric manager, earning $100,000 a year, would be represented by a building less than two feet tall. Considered globally, a typical employee working in a GE factory in Mexico and making $4,500 a year would be represented by a building less than one inch tall -- smaller than an anthill.

Such towering discrepancies between corporate leaders and those they seek to lead create obvious problems within the corporation. The short-term nature of present compensation policies offer a perverse incentive that rewards a few leaders for laying off workers and for pitting communities against one another for lucrative tax abatements and subsidized financing terms. Meanwhile large numbers of workers are economically insecure, fearful that their jobs too will be downsized or restructured. The communities where the worker's raise their families face struggles to pay for education and other vital public services, not adequately funded as a result of tax abatements.

Wide disparities in wealth also create social instability, which in turn harms the business climate. American shareholders know first hand the losses that can result when highly wealth-stratified economies such as those in Russia, Indonesia, and Brazil crumble. For a time, wealth concentrated in the hands of the few paints a false picture of growing national prosperity. It is, however a picture that is not sustainable.

It's time for a change! It is time to re-think the incentives we offer leaders of our corporation. It is time to look at the large option grants offered our leader who already has stock options worth more than a quarter of a billion dollars, and ask "how much incentive is enough?" It is time that we refute the "great person theory of shareholder value" that one person is responsible for the vast creation of wealth. It is time that we openly discuss the effects of concentrated wealth on our company, on the economy and on our democracy. Our proposal offers one simple solution to engage this discussion. We ask that General Electric establish a ratio between highest and lowest paid workers. It asks that the success of our company's leaders be linked to the success and security of their colleagues, the co-creators of value for shareholders, customers and society.

America stands at an important crossroads. Will we head into the next century as a nation divided by two sets of economic values: one that operates on a "winner takes all" principle, the other founded on the deeply seated American dream that all people who work hard deserve economic security and the opportunity to improve their lot in life? The answer to this question is up to us -- as people -- as citizens -- and as shareholders.

Please vote "FOR" resolution number 4. Thank you