Changes
in public policy could put a lid on executives’ excessive pay packages
Jon
Talton
June
26, 2015
Most commentary about exorbitant executive
compensation tends to fit accepted niches.
We read a little history, some technical
explanations, the latest insufficient regulatory efforts, attempts to conflate
CEO pay with that of pro athletes and, recently, a few economists rightly tying
the phenomenon in with rising inequality.
In most of this is a tone of resignation. A
Gallic shrug and the French phrase that is appropriate to so many of our
dilemmas today, tant pis. Rough translation: The situation is regrettable, but
nothing can be done.
To write otherwise is to step outside the
boundaries of good manners in our neoliberal “consensus.”
Which I will now proceed to do.
Three overarching factors caused the
CEO-to-worker compensation ratio of 20-to-1 in 1965 and 30-to-1 in 1978 to
skyrocket to 296-to-1 in 2013.
First is cultural change. Top executives in
the mid-20th century would have considered it unseemly to take so much from the
corporate treasury and shareholders, to be so publicly elevated from their
employees.
The (much smaller) 1 percent of that era had
progressed far from J.P. Morgan’s 1901 sentiment, “I owe the public nothing.”
By 1950, most believed they owed the public interest a great deal.
A Misused Quote
Their ethos was epitomized by General Motors
President Charlie Wilson’s oft-misused quote when he was being confirmed as
President-elect Dwight Eisenhower’s Defense Secretary, “What’s good for General
Motors is good for the country.”
What he actually said was, “For years I
thought what was good for our country was good for General Motors and vice
versa. The difference did not exist. Our company is too big. It goes with the
welfare of the country.”
Wall Street, where some of the worst of
today’s out-of-control compensation occurs, was a boring place until the late
1970s, presided over by executives who eschewed risk.
Being a shareholder was a serious, long-term
proposition, where most money was made through dividends rather than a rising
stock price.
So the next time you lament people on the
street acting like ”thugs” and mourn the death of appropriate behavior in our society,
include the deportment of a large segment of the executive class, as well.
Second is the federal tax system. In the
1950s, the top marginal tax rate was more than 90 percent. In 1980, it was 70
percent. The system was more progressive and, to critics, “redistribution of
wealth.”
Well, yes. This is how we paid for much of
the infrastructure, science and anti-poverty programs of the era. How we paid
for the wars, too, without massive deficits.
These rates on the highest-earners
discouraged excessive compensation. With so much of it going to Uncle Sam
anyway, better to let the company reinvest it.
This changed with much lower top marginal
rates that began with the Reagan revolution. They failed to increase tax
revenues, the myth notwithstanding. But they allowed top earners to keep much
more of their compensation.
Lower taxes on the richest Americans, along
with cuts to capital gains taxes, supercharged the so-called shareholder rights
movement. CEOs no longer saw their company’s health as synonymous with that of
the country. They were paid based on short-term gains to the share price, no
matter the damage done to communities, workers or long-term competitiveness.
Third, the checks and balances that helped
create the highly productive economy and thriving middle class of the era were
eroded, eliminated or corrupted.
Robust antitrust and fair-trade policies went
away, allowing for anti-competitive mergers and highly consolidated industries.
Chief executives who performed mergers were richly rewarded.
Regulators were compromised by the industries
they nominally kept watch over. “Deregulation” was actually changing
regulations to favor gigantic corporations over smaller, local companies. This,
too, opened the flood gates for top executives to pay themselves more.
For example, bank leaders were highly
compensated for taking on excessive risk to gain short-term profits and higher
stock prices, no matter the danger to the long-term health of their institution
or the danger to the taxpayers.
WaMu calamity
Think Kerry Killinger and
Also, workers lost bargaining power with the
decline of unions, anti-union National Labor Relations Boards and a raft of
anti-worker laws passed at the state level.
Until the mid-1970s, worker salaries had
risen steadily, even while top executives did well, too. After that, the trend
diverged and for decades many Americans have seen their wages stagnate or
decline. With few unions, they lack the means to push back against rising
executive compensation.
This was no coincidence. The new 1 percent
and many of the biggest corporations used their money to take control of
Congress and the courts, passing laws that favored them. Today’s regulators go
through a revolving door to lucrative jobs in the companies they “regulated.”
I see
two lessons.
One is that nibbling at the margins, such as
rules allowing advisory shareholder votes on compensation or detailing the
spread between average employees and the C-suite won’t work.
But two, the process is reversible. If the
moguls won’t restrain themselves from looting their companies, public policy
will go a long way.
Tax rates on the top earners should be raised
back to the 70-percent neighborhood. Capital-gains taxes should be tailored to
reward long-term ownership. Regulation should become independent again.
Unionization should be made easier. Banks backed by the taxpayers should be prohibited
from their compensation practices.
Finally, the analogy between chief executives
and great athletes or entertainers is fatally flawed. The latter compete in a
real marketplace that rewards the best talent through market forces.
Most CEOs operate in a crony world. At the
worst, they pick their own compensation committee. Even independent boards are
clubby and in thrall of all the justifications for unjustified and ever-rising
compensation.
What’s good for the 1 percent CEOs is bad for