Cathie Cool Rumsey targets excessive CEO pay

Senate OKs bill to help steer state contracts toward firms with lower CEO-to-worker pay ratios

 

STATE HOUSE – The Senate today approved legislation sponsored by Sen. Catherine Cool Rumsey that would give a preference in state contracts to companies whose CEOs do not make more than 32 times the salary of their lowest-paid employee.

The bill (2014-S 2796A), which will now be forwarded to the House of Representatives, is aimed at using the power of the public purse to promote equitable pay practices and at encouraging a reduction on the demands for social services that support poorly paid employees.

“The gap between the rich and the poor keeps getting wider, and part of the reason is that so many large companies pay exorbitant salaries to their CEOs while paying minimum wage or little more, with few benefits, to the many employees who work to create, sell or promote the products and services that make that company successful. Meanwhile, those employees are forced to rely on taxpayer subsidies for rent, food, health care, child care and more,” said Senator Cool Rumsey (D-Dist. 34, Exeter, Charlestown, Richmond, Hopkinton, West Greenwich). 

“The state should prefer to do business with companies that don’t excessively compensate their CEOs without also rewarding the workers at the bottom of the wage scale. Not only is it a matter of principle, but it’s also a matter of economics for the state, since our taxpayers pick up the tab if their employees need public assistance because they’re poorly paid.”

A recent congressional report found that the public assistance costs of employees at a single Wal-Mart Supercenter in Wisconsin are between $900,000 to $1.75 million annually.

According to a 2013 Economic Policy Institute study of the top 350 U.S. firms, CEO pay grew more than 876 percent between 1978 and 2011, more than twice the growth of the stock market and significantly faster than the growth of typical private sector workers. The ratio of CEO pay to average worker pay widened accordingly. In 1978, it was 29-to-1. By 1995, it had grown to 122-to-1, and it peaked at an astonishing 383-to-1 in 2000.

The legislation doesn’t stop companies from paying their CEOs whatever salary they want, nor does it prevent those companies from bidding on or winning state contracts. But in awarding those contracts, it gives companies that comply with the 32-to-1 ratio one bidding advantage over companies that don’t. The legislation allows the Department of Administration to develop the regulations governing the preference.

Under the 32-to-1 ratio, if a CEO’s compensation package totals $1.6 million, that company’s lowest-paid employee’s salary and benefits would have to be worth at least $50,000 in order for the company to get the preference.

Legislation addressing CEO pay is pending in at least one other state this year. In April, a Senate committee in California recommended passage of a bill that would cut taxes on companies with lower ratios of CEO-to-worker pay, and raise taxes on companies with high ratios.

Senator Cool Rumsey said just as some consumers choose to do business with companies that reflect their own values, the state ought to act as a savvy consumer and steer its business toward companies whose business practices don’t contribute to strains on public assistance.

“This preference is both a statement of our values – that employees shouldn’t be poorly paid if the CEO is paid excessively – and a way the state can be a smart consumer. It’s not really saving us money if we give state contracts to companies whose poor compensation of employees results in higher social service costs for the state,” said Senator Cool Rumsey.