KPCC business analyst Mark Lacter talks about the increase in CEO compensation; he also talks about women in business in California.
Susanne Whatley: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, it looks like chief executives are back to making nice money.
Mark Lacter: So much for the recession Susanne - CEO compensation rose 27 percent in 2010 (that's based on the median take home pay of $9 million); the average worker, he only saw a 2 percent increase in compensation last year. That is an enormous gap, way more than what was true 30 or 40 years ago. One example of the gap is Ray Irani, the outgoing chief executive of the L.A. based energy company Occidental Petroleum. We've spoken about Irani before: He's been a poster child over the years when it comes to high executive pay. Last year he made $76 million, which is more than double what he took home in 2009. In fact, only one other CEO made more money last year, according to an analysis by USA Today (though a lot of that money was deferred from previous years).
Whatley: How much does that eat into the bottom line?
Lacter: Well, Occidental is a huge company (revenue last year was almost $20 billion), so whether the CEO's pay is $76 million or $26 million doesn't mean all that much. Also keep in mind that a big part of the compensation package is based on performance. So if the CEO is doing well, there’s a pretty good chance the stock is doing well, which is good for shareholders (and Oxy happened to have had a good year).
Whately: But aren’t shareholders starting to push back on the high pay?
Lacter: They are. Irani will step aside as CEO this year, and from now on Occidental will have a different way of formulating compensation. Actually, there's a new federal rule that allows shareholders to take a non-binding vote on whether they're happy with what the company is paying its top executives, and that becomes somewhat of a deterrent. And some companies, like KB Home, the L.A. homebuilder, have learned about excessive compensation the hard way. The former CEO, Bruce Karatz, made $135 million in one year alone, and later left the company in a big scandal. The current CEO took home a little over $6 million last year - still nice money by most standards, but nowhere near like the old days.
Whatley: You mentioned a bunch of men's names, but there's been a big jump in women-owned businesses in California.
Lacter: There are way more of them in the state than anywhere in the country, according to a study that was commissioned by American Express. All told, California saw a 54 percent increase the number of women-owned firms formed between 1997 and 2011, and total sales were up nearly 60 percent. But here's where it gets tricky: The number of workers at those businesses was quite low compared with businesses that are owned by men.
Whatley: Why are those businesses smaller?
Lacter: Well, there are all kinds of theories: Women might be less interested than men in major expansion (now that's a generalization, of course, but several studies do suggest there's something to it), women tend to have access to fewer financial resources, and so expansion is harder (women also are less thrilled about the idea of carrying debt than men), and let's face it, there is still an old boys club in many industries. Another factor to consider: Women often own smaller service-type firms that aren’t conducive to big expansion (health care, marketing and advertising, personal care). Not surprisingly, the lowest concentration of women business owners are in male-dominated industries like construction, finance, insurance. That's led some experts to suggest that it's unrealistic to expect an equal playing field among all industries.
Whatley: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.