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The gap between CEOs and the rest of us

Paul Pressler, former chief executive officer of Gap as of yesterday, is likely to be awarded a $14 million severance package for exiting the company. Gap, once the “epitome of preppy” with over 3,000 stores worldwide, has been in serious decline ever since Pressler assumed the CEO mantle in 2002. Gap’s decline included a massive ...

By Prerna Mankad

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January 24, 2007, 4:41 PM

Paul Pressler, former chief executive officer of Gap as of yesterday, is likely to be awarded a $14 million severance package for exiting the company. Gap, once the "epitome of preppy" with over 3,000 stores worldwide, has been in serious decline ever since Pressler assumed the CEO mantle in 2002. Gap's decline included a massive 53 percent drop in quarterly profits in July of last year. Admittedly, Gap's market outlook was fairly bleak due to poor designs and other low-cost competition before Pressler stepped in, but after four years of lousy performance and bad strategic decisions about the company under his leadership, the issue of a $14 million payout should raise an eyebrow or two.

Paul Pressler, former chief executive officer of Gap as of yesterday, is likely to be awarded a $14 million severance package for exiting the company. Gap, once the “epitome of preppy” with over 3,000 stores worldwide, has been in serious decline ever since Pressler assumed the CEO mantle in 2002. Gap’s decline included a massive 53 percent drop in quarterly profits in July of last year. Admittedly, Gap’s market outlook was fairly bleak due to poor designs and other low-cost competition before Pressler stepped in, but after four years of lousy performance and bad strategic decisions about the company under his leadership, the issue of a $14 million payout should raise an eyebrow or two.

This news comes as world economic leaders and interested members of the public prepare to discuss top management pay at Davos in Thursday’s Open Forum. Executive pay has been a hotly contested issue recently, as estimates claim that CEOs are now making at least 431 times more than the average worker. While some analysts argue that the pay scales of executive managers have only risen in line with the market, others believe that company profits need to be distributed more evenly. Less controversial, though, is the idea that pay should be linked to performance. Here’s French presidential hopeful Nicolas Sarkozy:

[B]ig salaries do not shock me on condition that they are associated with real risk. To take an example, Patrick Kron, who has turned Alstom around, deserves a big salary. His predecessor did not deserve a golden parachute.”

Let’s see whether Davos, where the, er, “gap” between business leaders and the rest of us is starkly evident, can shed some light on the debate.

Prerna Mankad is a researcher at Foreign Policy.