Bush takes aim at executive salaries

NEW YORK - In his “State of the Economy” speech today, delivered from the financial center of the world, President Bush aimed at bringing his economic message out of the shadows of the Iraq war. On his second day in a row he focused on the economy, the government reported faster-than-expected growth of 3.5 percent in the final quarter of last year.

In his address, 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.

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.

The president spoke to an audience of business leaders at the venerable Federal Hall — a symbol of both America’s democracy and its economic resilience. Later, he stopped along Broad Street to shake hands with New York police officers and then ducked inside the New York Stock Exchange. The surprise visit caused a frenzy on the already chaotic trading floor. It was so crowded that traders standing just five feet away of Bush had a better view of him on television screens.

CNBC VIDEO Bush visits Big Board Jan. 31: President George W. Bush pays a visit to the trading floor of the New York Stock Exchange. CNBC reporter Bob Pisani reports. CNBC

In his address, Bush 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.”

Today, a report showed gross domestic product, the broadest measure of overall economic activity within U.S. borders, expanded at a 3.5 percent annual rate during the October-through-December quarter, according to the Commerce Department.

It was the best quarterly reading in the GDP report since the beginning of last year, when the slide in the U.S. housing market was not yet fully evident. It also was a healthier pace than the annual growth rate of 3.0 percent that economists were expecting. Consequently, it strengthened their sentiment that the Federal Reserve will not cut interest rates soon.

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