Pay Gap Fuels Worker Woes

Last year, payouts hit record highs despite efforts by corporate directors to put the brakes on perks such as overly generous signing bonuses and exit packages. According to the Congressional Research Service, the average pay for CEOs was more than 180 times average worker pay, up from a multiple of 90 in 1994. Total direct compensation for CEOs was a median $8.8 million, counting salaries, bonuses and other incentives, as well as the value of restricted stock, stock options and other long-term incentive awards at the time they were granted, according to a survey by the Hay Group of 200 major U.S. companies.

"If you're a plant manager and you have a good year, you can take a vacation, but if you're a CEO with options, you can cash out in a good year and then you and your children are set for life," says Peter Cappelli, a management professor at the Wharton School. "What angers employees the most is knowing that the top boss has this plus a whole lot of other perks they won't ever have, like a plusher health-care plan and a company car and driver."

For many employees, the higher cost of gasoline, health care, education, food and other daily expenses has left them with the feeling that they are treading water.

Hard-charging CEOs, who have spent decades climbing the ladder by putting in 80-hour workweeks, say they deserve to hit the jackpot when they gain the corner office. But ambitious employees have similar feelings, and figure their best chance to close the earnings gap is to keep zigzagging among companies and industries.

"When executives talk about a talent shortage in their ranks, they're really talking about a commitment shortage," which stems partly from pay inequality, says Rakesh Khurana, an associate professor at Harvard Business School. "The greater the inequality, the less willing employees are to learn specific company ways of doing things that aren't going to be useful to their next employer."

He says less than one-third of M.B.A. graduates from elite business schools are pursuing corporate management jobs, compared with two-thirds in 1970.

Governance experts, dissident stockholders and even some CEOs have begun pressing for "internal pay equity," or limiting CEO compensation to within a reasonable multiple of what their senior executives get, rather than benchmarking it to the pay packages of other CEOs.

"The key relationship is the one between the CEO and top 25 managers of the company, because that's the key team," General Electric CEO Jeffrey Immelt has said in recent interviews. "Should the CEO make five times, three times or twice what this group makes? That's debatable, but 20 times is lunacy," he added.

Last year, Mr. Immelt received $3.3 million in base salary, $5.8 million in bonus and $396,267 in other compensation, as well as other plan-based awards valued at $4.7 million at their grant date. His compensation, he has said, was in "the two to three times the range" of GE's other 25 top executives.

Dan Amos, CEO of Aflac, the insurer based in Columbus, Ga., says the best way to promote loyalty and teamwork is to link all staff pay to the company's performance, to varying degrees. The company is expected at its annual meeting next Monday to become the first U.5. public company to give investors a vote on top officers pay packages.

When he took charge 16 years ago, Mr. Amos replaced the company's traditional Christmas bonus with a profit-sharing one for all employees, from call-center personnel to top executives. In 2007, Aflac's 4,500 U.S. employees received an average of 6.7% of their annual salaries in bonuses. "We want everyone participating in making the company better and everyone benefiting when it does," says Mr. Amos, who received $4.1 million in salary, bonus and other compensation last year and was granted restricted stock and stock options valued at $8.4 million.

Smaller, more entrepreneurial companies have pushed internal pay equity further. At Analytical Graphics, an Exton, Pa., company that designs software for the aerospace, defense and intelligence industries, employees receive at least 15% of compensation in bonuses tied to performance targets. The higher an executive, the steeper the targets.

Analytical Graphics' top four officers and 12 senior managers receive 100% of their bonuses only if the company achieves 110% of its growth targets. "The higher up you go, the more your compensation is at risk," says CEO Paul Graziani.

He believes in giving perks to his 250 employees. Among these: a free gym at headquarters, washers and dryers so employees can do their laundry during work hours, and free dinners for anyone who stays late. Such benefits have helped to keep employee turnover at 3% to 5% annually, compared with the industry average of 21%.

"We don't offer free dinners and other perks to force people to be more productive but because when we do, they are more productive and we're more profitable," says Mr. Graziani. "It's a virtuous circle."