🔒Excessive CEO compensation complaints misguided

The anti-business oratory of certain interest groups ascended to an Olympian level during the 2015 legislative session. Connecticut media were flooded with well-worn shibboleths about greedy corporations, the corporate patriotic duty to pay taxes, and the most reverberating of all — excessive CEO compensation.

For example, in the June 9th Hartford Courant, House Majority leader Joseph Aresimowicz left his imprint on the compensation issue noting that “[m]aking upper-income wage-earners pay their fair share is great in my book … I guess the difference between a weekend on the yacht and a regular trip to the grocery store — they can take a weekend off from the yacht.”

Slogans of this type generally lack enough bandwidth to deserve a substantive editorial response. However, the quip about excess compensation is different from diatribes about “greedy corporations” because it has a sting which, at a minimum, fulfills the intended purposes of those from whose lips it is uttered: Casting successful CEOs as latter day Ebenezer Scrooges out to pillage working people.

People feel this sting (which I fully understand) because some CEO's compensation numbers are on the scale of lottery winnings and are not easy to conceptualize in the context of a paycheck for services rendered. However, if we analyze the compensation complaint, it becomes clear that it has no value other than as another rhetorical ruse used to advance an anti-business agenda.

While several Connecticut CEOs have been named in the crossfire, let me make my case by using General Electric CEO Jeffrey Immelt as an example. He is a good choice not only because of his reported 2014 compensation of $37 million (a whopping amount of money), but because of his recent comments that it may be time to move GE out of Connecticut because of its cooling business climate.

First, consistency in the application of principles is a testament to the integrity of those who champion them. Accordingly, if the principle being espoused is that certain people make too much money, then for consistency's sake why are the complaints leveled only against business executives — as opposed, for example, to people in the sports and entertainment world?

In 2014 Yankees pitching ace CC Sabathia earned $24 million and Kim Kardashian earned $28 million. I do not begrudge Sabathia or Kardashian for their earnings or question the value others see in what they do, but I do believe that Immelt's higher compensation is justified by his responsibility for an organization with operations in 170 countries and 300,000 employees, and which is involved in technology and manufacturing businesses as varied as appliances, lighting, aviation, energy management, health care, power generation and transportation.

Second, the compensation complaints are deliberately misleading to the extent they involve (as they typically do) gross pre-tax income numbers, not net after tax numbers (tax payments are added back to public coffers). Immelt's tax returns are not public information, but it is easy to estimate a combined state and federal tax rate of 45 percent, which means that his take-home pay in 2014 was approximately $20 million. This is still enough to buy a good sized yacht, but the point is that an intellectually honest discussion of the issue would acknowledge the $17 million that went back to the government (which is also enough for a yacht).

Third, in any excess compensation discussion people should be given credit for their charitable contributions. Immelt's tax returns are private, but a quick Internet search led me to the Robin Hood Foundation, a large anti-poverty charity in New York of which Immelt is a director. The foundation's homepage states that the members of the board of directors contributed a total of $73.4 million to the foundation in 2013. If we make a reasoned assumption that each of the 25 directors gave equally, Immelt's 2013 contribution was $ 2.9 million (also enough to buy a yacht).

Fourth, if anyone has a gripe about Immelt's pay it is not taxpayers (the higher the compensation the greater the tax revenue), but GE shareholders. Each dollar Immelt is paid is one dollar fewer available for distribution to shareholders as dividends. Shareholders vote to elect the board of directors of GE, which then sets Immelt's compensation, so they are not without a venue to voice complaints if they have concerns.

Finally, I wish that I made as much money as Immelt. I would pay my taxes, be enormously generous with charities, and replace my 21-foot aluminum fishing boat with something more comfortable. I am too old to get there, but the advice I would give young people with high aspirations would be to follow Immelt's roadmap: Study hard in high school to get into a good college; study even harder in college to get into a good business school (he went to Harvard); study hard in business school to get a good job, and work hard at that job to excel.

Connecticut would be better off if more CEOs had reason to believe that this was a desirable place to live and locate their headquarters. If nothing else, there are many nice marinas along the coast where they can moor their yachts.

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own.

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