The Outrageous Ascent of CEO Pay
The Outrageous Ascent of CEO Pay
The Securities and Exchange Commission approved a rule last week requiring that large publicly held corporations disclose the ratios of the pay of their top CEOs to the pay of their median workers.
About time.
For the last thirty years almost all incentives operating on American corporations have resulted in lower pay for average workers and higher pay for CEOs and other top executives.
Consider that in 1965, CEOs of America’s largest corporations were paid, on average, 20 times the pay of average workers.
Now, the ratio is over 300 to 1.
Not only has CEO pay exploded, so has the pay of top executives just below them. The share of corporate income devoted to compensating the five highest-paid executives of large corporations ballooned from an average of 5 percent in 1993 to more than 15 percent by 2005 (the latest data available).
Corporations might otherwise have devoted this sizable sum to research and development, additional jobs, higher wages for average workers, or dividends to shareholders – who, not incidentally, are supposed to be the owners of the firm.
Corporate apologists say CEOs and other top executives are worth these amounts because their corporations have performed so well over the last three decades that CEOs are like star baseball players or movie stars.
Baloney. Most CEOs haven’t done anything special. The entire stock market surged over this time. Even if a company’s CEO simply played online solitaire for thirty years, the company’s stock would have ridden the wave. Besides, that stock market surge has had less to do with widespread economic gains that with changes in market rules favoring big companies and major banks over average employees, consumers, and taxpayers.
Consider, for example, the stronger and more extensive intellectual-property rights now enjoyed by major corporations, and the far weaker antitrust enforcement against them. Add in the rash of taxpayer-funded bailouts, taxpayer-funded subsidies, and bankruptcies favoring big banks and corporations over employees and small borrowers. Not to mention trade agreements making it easier to outsource American jobs, and state legislation (cynically termed “right-to-work” laws) dramatically reducing the power of unions to bargain for higher wages. The result has been higher stock prices but not higher living standards for most Americans.
Which doesn’t justify sky-high CEO pay unless you think some CEOs deserve it for their political prowess in wangling these legal changes through Congress and state legislatures. It even turns out the higher the CEO pay, the worse the firm does.
Professors Michael J. Cooper of the University of Utah, Huseyin Gulen of Purdue University, and P. Raghavendra Rau of the University of Cambridge, recently found that companies with the highest-paid CEOs returned about 10 percent less to their shareholders than do their industry peers.
So why aren’t shareholders hollering about CEO pay? Because corporate law in the United States gives shareholders at most an advisory role. They can holler all they want, but CEOs don’t have to listen.
Larry Ellison, the CEO of Oracle, received a pay package in 2013 valued at $78.4 million, a sum so stunning that Oracle shareholders rejected it. That made no difference because Ellison controlled the board. In Australia, by contrast, shareholders have the right to force an entire corporate board to stand for re-election if 25 percent or more of a company’s shareholders vote against a CEO pay plan two years in a row.
Which is why Australian CEOs are paid an average of only 70 times the pay of the typical Australian worker. The new SEC rule requiring disclosure of pay ratios could help strengthen the hand of American shareholders. The rule might generate other reforms as well – such as pegging corporate tax rates to those ratios.
Under a bill introduced in the California legislature last year, a company whose CEO earns only 25 times the pay of its typical worker would pay a corporate tax rate of only 7 percent, rather than the 8.8 percent rate now applied to all California firms.
On the other hand, a company whose CEO earns 200 times the pay of its typical employee, would face a 9.5 percent rate. If the CEO earned 400 times, the rate would be 13 percent. The bill hasn’t made it through the legislature because business groups call it a “job killer.” The reality is the opposite. CEOs don’t create jobs. Their customers create jobs by buying more of what their companies have to sell.
So pushing companies to put less money into the hands of their CEOs and more into the hands of their average employees will create more jobs. The SEC’s disclosure rule isn’t perfect. Some corporations could try to game it by contracting out their low-wage jobs. Some industries pay their typical workers higher wages than other industries.
But the rule marks an important start.
The company Google recently bid to buy out 'Impossible Foods,' the creator of the "Impossible Cheeseburger" which looks, cooks, and tastes like 'real' meat.
For the 35 years, almost all incentives operating on American corporations have resulted in lower pay for average workers and higher pay for CEOs and other top executives – it's about time that started to change.
People dying in the streets and living under the thumb of institutional racism don't enjoy the privilege of having their voices heard – so if they have to shut down a campaign event to force people to listen, they'll do it.
A new report shows how much food and biotech companies increased their lobbying expenditures in 2015 – mainly to support the Deny Americans the Right to Know Act, which the House passed last month.
Saturday afternoon in San Francisco’s Golden Gate Park reveals inequality like perhaps no other place can.
America has experienced "gush-up" rather than "trickle-down" – now the shame is on the adherents of unregulated free-market capitalism who have assaulted us with winner-take-all wealth over the common good.
The middle class is doing just fine, they say...
"I never would have thought I lived in a country where I could theoretically be under surveillance and I could go to jail for my work."
America has experienced "gush-up" rather than "trickle-down" – now the shame is on the adherents of unregulated free-market capitalism who have assaulted us with winner-take-all wealth over the common good.
The faith community, tattooed young folk, retirees and other people from all walks of life agree: business as usual is inconsistent with survival, and we’re prepared to give it our all to stop it.
"I never would have thought I lived in a country where I could theoretically be under surveillance and I could go to jail for my work."
The filing before an Oregon federal judge represents the most direct acknowledgement to date that people aren't allowed to fly because of what the government believes they might do, and not what they've already done.
-- Delivered by Feed43 service
Post a Comment