There was a time in this country, a few decades ago, when the CEO to worker compensation ratio was similar to that of other democracies. But that is not true anymore. About 35 years ago, the Republicans gained enough power to change the economic policies of the United States. They were enamored of "trickle-down" economics -- the idea that what was good for the rich and the giant corporations was good for all Americans.
Through deregulation of Wall Street, subsidies for corporations, weakening labor unions, encouraging the off-shoring of good jobs, and huge tax cuts for the rich and corporations, they tilted the economic playing field to favor the wealthy. They told Americans that as the rich (and corporations) got richer, they would share some of that new wealth with everyone else (through new jobs and higher wages). Unfortunately, that did not happen. The rich and the corporations got much richer, but none of that new wealth was shared with anyone -- it just sat in their bank accounts.
There was one tiny group of "employees" that did benefit from the new "trickle-down" policies -- the CEOs of the giant corporations. While worker wages remained stagnant, the compensation given to corporate CEOs climbed dramatically. Currently the average CEO in the United States makes 354 times the money paid the average U.S. worker (and in some corporations the ratio is even worse. Now that ratio is far higher than in any other free enterprise democracy (see chart above).
This CEO to worker pay ratio is indefensible. Corporate spokesmen (and their congressional Republican lackeys) try to justify it by saying they must pay those outrageous amounts to get and keep the best CEOs. I don't believe that for even a second. If that's true, why isn't it true in the other countries? They seem to be able to compete effectively with American corporations while pay their CEOs a much lower rate.
The new Wall Street financial regulations passed by Democrats a few years ago tried to address this problem. One part of that law required corporations (with at least $1 billion in gross revenues) to publish the CEO to worker pay ratio for that company. And finally, the Securities and Exchange Commission put that into effect last Wednesday (after delaying implementation for about 5 years).
Will this do any good? I doubt it. The idea seems to be to shame corporate boards into reining in CEO compensation (or raising worker compensation). The problem is though that corporate boards don't have any shame.
Personally, I think a much stronger law needs to be passed -- a law that will cap CEO pay to a certain ration of the average worker pay in a company. We can debate where that cap should be set (67-1 like Japan, 104-1 like France, 147-1 like Germany, or 206-1 like Canada). But whatever the level, it would mean CEO pay could not exceed that level -- and could not be raised without first raising the pay level of the average worker. Currently, CEOs boards and owners are hogging all of the rising productivity of a company. This rule would insure a part of that productivity is shared with workers.
Of course, that won't happen as long as Republicans control Congress (and neither will a higher minimum wage be passed or unions strengthened or off-shoring be stopped). That is just one more reason why the Republicans must be voted out of power in 2016. There is no other way to return to a fairer economic policy -- one that will benefit all Americans.
I fear that they will always find a way around it. Dean Baker argues that the problem is the boards, which are paid to do virtually nothing but rubber stamp CEO compensation. I don't so much accept this. The biggest problem is just a question of norms. There is no sense of shame. No overpaid CEO is ever going to miss out on the great parties because of his (in almost all cases) salary. This is an enormous problem that goes far beyond CEO salaries. For example, if ex-politicians who became lobbyists were shunned, I think we would see far less of it.
ReplyDeleteOne thing I find curious is that conservatives always say we have to pay the "job creators" top dollar or they will stop producing. But doesn't paying them so much that they don't have to work do the same thing? Carly Fiorina has never had to work since leaving HP, and pretty much hasn't. (Not that that's a bad thing.) Ultimately, I think Piketty is right: we need an international wealth tax.
I don't expect this rule to do much. We need some serious regulations on the giant banks and corporations. But the only way to do that is to flip the Senate and House -- and then turn Senator Warren loose to do her thing.
ReplyDeleteYou know what it takes to be a filthy rich CEO ... be an ahole sociopath! and it helps to have lower rank people to get blamed for everything...Obama is a good example of being blamed for everything done by the sociopaths in business and congress.
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