smiling. They're not.
Disconnect: The Qwest CEO's pay package highlights a gulf
between executive and employee compensation.
By H. J. Cummings,
Minneapolis Star Tribune
Sunday, May 20, 2007
When Qwest Communications went looking for a new CEO in
2002, Richard Notebaert could play hard to get. The beleaguered
telephone company had just forced out its former CEO amid an
insider trading scandal.
Notebaert, who'd been CEO at two other telecommunications firms,
drove a hard bargain. He negotiated a contract that, among
other things, pays for his personal financial planning (plus
some extra to cover the income tax he'll owe on that perk) and 5
million stock options. It credited him with 30.4 years worth of
service toward his pension on his first day on the job. That
gave him a $9 million head start toward retirement.
In 2006 alone, Notebaert's total compensation was about $33
Last year was not so kind to Qwest retirees Mary Ann Neuman and
Nancy Meister. Neuman, a 61-year-old New Hope resident, saw her
monthly health insurance premium jump 79 percent, from $124 to
$222. Meister, 57, of Plymouth, got word her former employer
was cutting her company life insurance policy to about 15
percent of the payout she'd been promised.
Qwest says the reduced benefits for retirees have been made
necessary by the increased costs it faces. But the contrast
between the treatment afforded the CEO and the rank and file
isn't limited to Qwest.
Top executives are being paid 262 times the average worker's
wage, up from a multiple of 24 about 40 years ago, according to
the Economic Policy Institute's most recent analysis in 2005.
The gap widened significantly in the 1990s, in part because of
the generous use of stock options in executive pay packages.
Chuck Denny, retired CEO of ADC Telecommunications Inc. in Eden
Prairie, sees a broad challenge stemming from the growing pay
gap, a violation of the social contract of democratic free
"It has always been assumed that we'll allow some people to make
vast amounts of money, as long as everyone else sees their
standard of living increase," Denny said. "This compact is
Institutional Shareholder Services, a Wall Street research firm,
calculated that for every $100 in 2006 net income at the
38,000-employee Qwest, $4.16 went to its CEO.
Meanwhile, Qwest call center workers have complained in federal
court that the company has been forcing them to work overtime
Nikie Graham, 22, of Roseville, is part of the Minnesota lawsuit
that challenges conditions in Qwest's St. Paul call center,
where Graham worked in 2004 and 2005. The regular demands of
the job -- like starting 10 to 20 computer systems and programs
to be ready for calls when their shifts began -- tacks about
half an hour onto everyone's work day, Graham estimates. "I
worked a lot of time that I didn't get paid for, and it wasn't
right," she said.
Qwest, which is based in Denver and has about 4,200 employees in
Minnesota, denies the allegations. But Graham's attorneys have
won the first in a two-step process to take the case national,
after hearing from Qwest call center workers in 11 other states.
Reward without risk
Extraordinary CEO pay these days turns another core capitalist
principle on its head -- that great rewards go to those who take
great risks -- said Stephen Young, executive director of the
Caux Round Table in St. Paul, an international network of
business leaders that looks at business standards.
Working Americans are bearing the risks of layoffs, outsourcing
and lost retirement benefits, Young said. At the same time, top
CEOs increase their multiples of pay and lock in their own
For example, Notebaert has both regular employee and special
executive pensions at Qwest, with a current combined value of
$10 million. He has retiree health coverage from another
employer, but Qwest promises that if that goes away for any
reason, it will cover him. Qwest also will set him up with a
private office for the rest of his life, worth $3.5 million,
plus $2.2 million to cover the income taxes he'll owe on that.
"The Notebaert retirement -- that's all completely risk-free,"
Young said. "And health coverage? He's going to be covered one
way or another. [Some] people are going to have a lot of fun
trying to live on Social Security, while this guy is not."
Qwest spokeswoman Diane Reberger said changes to workers' and
retirees' benefits were a prudent response to changes in the
costs of providing such compensation.
"It was a difficult decision, and not one taken lightly,"
She added that Notebaert has earned his pay. Qwest stock now
trades at about $10 a share, up from $5.16 on the last day of
May 2002. Total return to Qwest shareholders for the period is
about 88 percent, compared with about 54 percent for the
Standard & Poor's 500 index.
"Look at his compensation in terms of how the company has
performed," she said. "We just reported our fifth consecutive
quarter of profitability. Cash flow and margins have improved,
and customer service scores are at an all-time high. Across the
board, the company has made dramatic improvements."
However, the company also credited decreases in operating and
benefit expenses in announcing its first-quarter gains this
The perks list
In its proxy statement, the company reported that Notebaert
earned almost $33 million in 2006, including $1.1 million in
salary, $4.1 million in bonus, $760,000 in perks, $18.4 million
in stock options he exercised, and $8.4 million in stock grants
that vested last year.
The filing also details for the first time Notebaert's package
of perquisites, a new reporting requirement for all public
companies in 2006. His perks include: $331,873 for use of the
corporate jet, including travel by his wife; $55,921 for a
personal assistant and office, and $17,113 for miscellaneous
items such as club memberships and personal ground
transportation. In addition, he's paid $75,000 for any other
perks of his choice.
Notebaert's contract and the company's financial performance
earned Qwest a place on the list of 12 worst companies in a "Pay
For Failure" report by the Corporate Library, a Maine-based
corporate governance research organization released earlier this
Qwest's Reberger called the report unfair because it covers
2001-2006 and Notebaert didn't join Qwest until 2002. "It's
just not an apples-to-apples comparison," she said.
The report's author, Paul Hodgson, stands by the analysis.
"My contention is he has been compensated extremely handsomely
for what shareholders would see as an OK record in the last two
to three years," Hodgson said.
H.J. Cummins • 612-673-4671 •