The Association of U S West Retirees



What would Carnegie do about corporate pay, charity?
USA Today Editorial
By Curt Weeden
Sunday, May 7, 2006

If Andrew Carnegie were still around, odds are he'd come up with a way to quell the increasingly noisy debate over hefty executive pay increases.

To lay the groundwork for his recommendations, he'd likely open with a couple of disquieting facts:

Survey results reported in The Wall Street Journal revealed that last year, CEOs of 350 major U.S. companies were paid $4.1 billion in salary, bonus and realized long-term compensation. The median pay for these executives jumped 23% over what they earned in 2004.

Corporate charitable contributions, on the other hand, increased only 5.5% in 2005. When the IRS adds the donation deductions that 400,000 businesses typically take in any tax year, corporate giving is expected to total approximately $13 billion.

So, what's the connection between surging executive pay and relatively sluggish corporate philanthropy? None. But Carnegie, who made his fortune from steel, might argue there should be.

In the late 1800s, it was Carnegie who called on his well-heeled peers to give away their fortunes for the benefit of the public good and to do so while they were still alive. A few captains of industry both past and present have taken the Carnegie philosophy to heart. But statistics tell us that business leaders, along with other taxpayers who have adjusted gross incomes of $1 million or more a year, usually limit their donations to between0.7% and 1.4% of their investment assets, according to the NewTithing Group, a non-profit organization that monitors giving trends.

Like most of us, top executives working for publicly held companies aren't obligated to disclose how much they give to charity. But annual proxy statements tell the world how much they are paid.

Because shareholders and other stakeholders are showing more and more displeasure about the widening compensation gap between the highest- and lowest-paid workers, here's how Carnegie might try to calm the waters:

1) CEOs and other executives whose compensation is made public in proxy reports would voluntarily agree to donate 50% of their annual increases in salary, bonus and realized long-term compensation to community foundations or other broad-based groups in locations where their companies have a presence or interest.

2) Executives would openly disclose the value of their "Carnegie Commitments" and would pledge that these special grants would not offset any of their other personal charitable donations.

3) A community-based funding agency would determine how a CEO's gift would best meet high-priority local needs, thus removing any perception of self-interest. By directing these Carnegie Commitments to towns and cities in which companies have a vested interest, executives can show that they understand these communities play an essential role in keeping corporations in business.

Though the recommended supplemental contribution would put a dent in a top executive's paycheck, it would also make for a handsome tax write-off (the IRS permits taxpayers to take charitable deductions of up to 50% of their annual adjusted gross incomes). Consequently, the financial pain would be minimal and the positive PR value immense.

Had the Carnegie plan been adopted last year by all the CEOs included in The Journal's survey, $360 million would have been infused into U.S. communities. Iftop earners in the nearly 13,000 businesses that annually report to the Securities and Exchange Commission were to adopt the Carnegie approach, it would mean billions of dollars for many of the nation's more than 800,000 public charities.

For a man whose motto was "the man who dies thus rich dies disgraced," Andrew Carnegie might tell executives that this plan should be the start of a much longer, fortune-dispensing journey.

But he would also probably add that the plan does indeed point executives in the right direction.

Curt Weeden is author of Corporate Social Investing.