How Clinton made the rich richer

Flashback time: it is 1992 and, in his quest for the US presidency, an eager governor of Arkansas called Bill Clinton is lashing out at the "obscenely" high pay of the nation's big bosses (also known, in Amerispeak, as CEOs - chief executive officers). Something must be done to halt this outrage, pronounces our Bill - and when he is president, voters can rely on him to do just that. This, after all, is the land of unquestioned fairness and egalitarianism.

Now let us step forward eight years, into the final six months of the Clinton presidency. Precisely nothing has been done. If ever there was one issue that showed Clinton to have been pretty indistinguishable from his predecessor, George Bush Snr, this is it: when Bush's vanquisher entered the White House, the country's top bosses made roughly 100 times the typical pay of one of its workers. Now, after nearly eight years, they make 475 times the pay packet of the typical Ameri-can. To take one example: Tim Koogle of the internet company Yahoo! takes home $4.7m a day - compared with the median daily US household income of $110.

It is the combination of the dot-com revolution and the booming economy that has created this almost out-of-control explosion in the pay packets of the nation's bosses: last year, Steve Case of AOL made $1.1bn, while John Chambers of Cisco Systems made a mere $337m. Seven out of the country's ten most highly paid bosses run technology companies - and four of those bosses are under 50. If you're part of this new economy, you're not a successful boss unless you've already made $1bn of stock options.

The average pay for a top CEO went up by 25 per cent in the past year alone and - including salary and stock options - now stands at $12.4m a year. Robert Knowling, 44, recently joined an internet company and was offered 5 per cent equity of the new company. "Is $200m enough?" he recalls worrying during negotiations. "Or is $400m enough, or is $800m enough?"

He ended up with a salary of less than $1m, but with shares currently worth $310m and now likely to increase exponentially. "Indefensible" is how one friend of mine, Nell Minow, describes this corporate pay frenzy: she has spent much of the past year researching it all, using documents that are available to the public, but which both companies and bosses prefer to keep secret.

Her favourite case - mine as well - is the contract signed in February last year by Robert Annunziata, 50, to head a telecom giant known as Global Crossing. To lure him away from his senior post at AT&T - not, incidentally, the top post - this company agreed to pay Annunziata $10m just for turning up (known as a "signing bonus") and stock options of $20m (two million shares at $10 a share below market value). And, in the ludicrous corporate-speak of this frenzy, he negotiated the most oxymoronic clause of all - a "guaranteed bonus" of not less than $500,000 a year. His contract also specified that the corporate jet would be made available to him and his family whenever he asked, along with a brand-new 1999 model Mercedes-Benz SL 500. And, just in case the poor chap missed his mum, the company agreed to fly her across the country every month - first class, naturally.

But it didn't work out. In March this year, Annunziata and Global Crossing parted company. We needn't feel too sorry for him, though: his predecessor had also lasted only ten months in the job, but was given $170m just to leave quietly.

Forbes magazine, the bible of US business groupies, called him "gallant" for saying that "whatever works for the company works for me". In Nell Minow's words, however, $170m buys "a lot of gallantry" from an unsuccessful businessman discarded in so munificent a way.

Back in the UK, I've noticed that this form of the Peter Principle certainly seems to work in journalism: fail at your job and, a) you'll be offered a lot of money to go, and b) some new outfit will be sufficiently stupid to offer you a post because of the supposed prestige of the one you've just failed at. The justification for the monumental pay explosion here is that brilliant businessmen who bring in huge dividends and other results are worth whatever they're paid: if Yahoo! makes billions for its share-owners, why be-grudge Koogle his $1.7bn a year? "As long as the economy stays good and most people are very hopeful about their personal economic future, no one is terribly concerned about excessive CEO pay," agrees Robert Reich, Clinton's first labour secretary.

But the notion that the toughest and most brilliant guys achieve results is not always supported by the facts. While Steve Case of AOL has been making his billions, his company's average return on equity was -119 per cent. The chief of Disney, Michael Eisner, 57, has raked in a cool $636.9m over the past three years - putting Disney bottom in Business Week's league of how companies fared vis-a-vis the pay of their top men. (There are women, too: of the country's ten most highly paid CEOs, one is a woman.)

It has now been 80 years since Walter Chrysler was hired to run a car company for the unbelievable salary (at the time) of $1m a year. Today, with the number of 35- to 44-year-olds in demand declining, the pay of top bosses under Clinton is booming in a positively surreal way. It is yet another vivid example of how the 42nd president has failed to keep his promises.

Think about it this way: while you've been taking five minutes to read this column, Steve Case has raked in another $16,319. Even if he happens to be sound asleep.

Andrew Stephen was appointed US Editor of the New Statesman in 2001, having been its Washington correspondent and weekly columnist since 1998. He is a regular contributor to BBC news programs and to The Sunday Times Magazine. He has also written for a variety of US newspapers including The New York Times Op-Ed pages. He came to the US in 1989 to be Washington Bureau Chief of The Observer and in 1992 was made Foreign Correspondent of the Year by the American Overseas Press Club for his coverage.

This article first appeared in the 03 July 2000 issue of the New Statesman, And is there honey by the Tees?