Until
the 1980s, corporate CEOs were paid, on average, 30 times what their typical
worker was paid. Since then, CEO pay has skyrocketed to
280 times the pay of a typical worker; in big companies, to 354 times.
Meanwhile, over the
same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even
though the pay of male workers continues to outpace that of females, the
typical male worker between the ages of 25 and 44 peaked in 1973 and has been
dropping ever since. Since 2000, wages of the median male worker across all age
brackets has dropped 10 percent, after inflation.
This growing divergence
between CEO pay and that of the typical American worker isn’t just wildly unfair.
It’s also bad for the economy. It means most workers these days lack the
purchasing power to buy what the economy is capable of producing — contributing
to the slowest recovery on record. Meanwhile, CEOs and other top executives use
their fortunes to fuel speculative booms followed by busts.
Anyone who believes
CEOs deserve this astronomical pay hasn’t been paying attention. The entire
stock market has risen to record highs. Most CEOs have done little more than
ride the wave.
The proposed
legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s
typical worker. Corporations with low pay ratios get a tax break.Those with
high ratios get a tax increase.
For example, if the CEO
makes 100 times the median worker in the company, the company’s tax rate drops
from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the
pay of the typical worker, the tax rate goes down to 7 percent.
On the other hand,
corporations with big disparities face higher taxes. If the CEO makes 200 times
the typical employee, the tax rate goes to 9.5 percent; 400 times, to 13
percent.
The California Chamber
of Commerce has dubbed this bill a “job killer,” but the reality is the opposite. CEOs
don’t create jobs.Their customers create jobs by buying more of what their companies
have to sell — giving the companies cause to expand and hire.
So pushing companies to
put less money into the hands of their CEOs and more into the hands of average
employees creates more buying power among people who will buy, and therefore
more jobs.
The other argument
against the bill is it’s too complicated. Wrong again.
The Dodd-Frank Act
already requires companies to publish the ratios of CEO pay to the pay of the
company’s median worker (the Securities and Exchange Commission is now weighing
a proposal to
implement this). So the California bill doesn’t require companies to do
anything more than they’ll have to do under federal law. And the tax brackets
in the bill are wide enough to make the computation easy.
What about CEO’s gaming
the system? Can’t they simply eliminate low-paying jobs by subcontracting them
to another company – thereby avoiding large pay disparities while keeping their
own compensation in the stratosphere?
No. The proposed law
controls for that. Corporations that begin subcontracting more of their
low-paying jobs will have to pay a higher tax.
For the last thirty
years, almost all the incentives operating on companies have been to lower the
pay of their workers while increasing the pay of their CEOs and other top
executives. It’s about time some incentives were applied in the other
direction.
The law isn’t perfect,
but it’s a start. That the largest state in America is seriously considering it
tells you something about how top heavy American business has become, and why
it’s time to do something serious about it.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies, was Secretary of Labor in the Clinton administration.
Time Magazine named him one of the ten most effective cabinet secretaries of
the twentieth century. He has written thirteen books, including the best sellers
“Aftershock" and “The Work of Nations." His latest, "Beyond
Outrage," is now out in paperback. He is also a founding editor of the
American Prospect magazine and chairman of Common Cause. His new film,
"Inequality for All," is now available on Netflix, iTunes, DVD, and
On Demand.
