NEW YORK – President Bush took aim Wednesday at lavish salaries and bonuses for corporate executives, standing on Wall Street to issue a sharp warning for corporate boards to "step up to their responsibilities" and tie compensation packages to performance.
Bush's "State of the Economy" speech, delivered from the financial center of the world, was aimed at bringing his economic message out of the shadows of the Iraq war. On his second day in a row focused on the economy, the government reported faster-than-expected growth of 3.5 percent in the final quarter of last year.
The president acknowledged people's continuing nervousness about their financial picture, despite a string of similar reports that provide some reason for optimism. He said some workers are being left behind in the booming economy and the disparity between the rich and the poor is growing.
"The fact is that income inequality is real. It has been rising for more than 25 years," the president said. "The earnings gap is now twice as wide as it was in 1980," Bush said, adding that more education and training can lift peoples' salaries.
He said he realized that stories about the enormous salaries and other perks for CEOs, for instance, create anger and uncertainty that affect the country's investors.
The president does not endorse any government role in reducing those packages. Instead, Bush highlighted new federal rules that the administration thinks are a better path toward wise compensation decisions by companies.
"Government should not decide the compensation for America's corporate executives," he said. "But the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders."
In effect starting last month, the rules give investors access to clearer and more detailed information from public companies on their top executives' pay packages and perks. Their impact will become apparent as corporations begin issuing 2006 annual reports.
"America's corporate boardrooms must step up to their responsibilities," Bush said. "You need to pay attention to the executive compensation packages that you approve. You need to show the world that America's businesses are a model of transparency and good corporate governance."
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has said he will push legislation to require shareholder approval of executive compensation plans. And a separate bill before the Senate to raise the minimum wage would fund accompanying tax breaks to ease the burden on small businesses by capping executives' tax-deferred pay packages at $1 million a year.
Still, even Bush's words on pay were met with complete silence from the business crowd he addressed.
Huge salaries and other perks for CEO have drawn investor ire and made splashy headlines. Anger over executive compensation unrelated to performance, even as companies stumble, lay off employees or renege on billions of dollars in pension obligations for workers' retirement, has spread from shareholders to union activists and buttoned-down mutual fund trustees. The chasm between executives' salaries and the pay of rank-and-file employees continues to widen.
Home Depot chief executive Bob Nardelli was earning an average of $25.7 million a year — excluding stock options — before he was forced out in a furor over his hefty pay. He left with a severance package worth about $210 million.
In 2001, General Electric Co. paid chief executive Jack Welch $16.25 million. Welch was replaced that year with Jeffrey Immelt, who earned $3.4 million in total annual compensation in 2005.
The New York Stock Exchange faced an uproar over former CEO Richard Grasso's $187.5 million severance package. Former New York Attorney General Eliot Spitzer, now governor, sued members of the NYSE board over the package given to Grasso when he quit as chairman in 2003.
The annual salary of the president is $400,000.
Bush chose to speak at the venerable Federal Hall on Wall Street — a symbol of both America's democracy and its economic resilience. The current hall, which dates to 1842, is now a museum that helped provide emergency shelter when terrorists destroyed the World Trade Center, just a few blocks away.
"The state of our economy is strong," he declared.
Democrats respond that Bush is giving a misleadingly rosy picture about the economy.
"President Bush can deliver all the economic pep talks he wants, but the fact remains that his failed leadership has led to the worst job recovery on record, stagnating household incomes, a rise in poverty and record deficits," said Stacie Paxton, spokeswoman for the Democratic National Committee.
Since Bush took office in 2001, the country has seen one in five manufacturing jobs disappear, a total of 2.96 million lost jobs. The U.S. trade deficit is expected to climb to a fifth consecutive record when final 2006 figures are totaled next month.