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Turning the Tables on ‘Tax and Spend’

Could the classic conservative put-down of progressive policy become a strategic template for attacking CEO pay excess? Legislators in California and Rhode Island may soon find out.

By Sam Pizzigati

Rhode Island lawmaker Catherine Cool Rumsey and fellow state senators in California are leading a new charge against executive pay excess.

Catherine Cool Rumsey in Rhode Island and fellow state senators in California are leading a new charge on CEO pay excess.

We may now be living in the golden age of executive pay journalism. Nearly every day seems to bring still another story exposing the sheer lunacy of contemporary CEO compensation.

In the last week alone we’ve learned that “pay for performance” has raised CEO earnings at the online giant Yahoo to a potential $214 million for the last two years. But the performance getting so royally rewarded, an ace news report explains, has actually taken place at another corporation!

We’ve also just had an enterprising reporter detail the behind-the-scenes corporate lobbying effort that’s maneuvering to get executive pay redefined, in federal regulations, to exclude signing bonuses, pensions, and perks.

And we’ve been treated to one of the finest leads ever on a CEO story. Quipped a reporter in New York Tuesday: “Hey, J. Patrick Doyle, save some dough for the pizzas.”

That line tops a story about Domino’s Pizza chief Pat Doyle, a suit who has pocketed $43 million the last three years running an operation that stiffs low-wage workers and creams off taxpayer subsidies.

Doyle’s windfalls, in some CEO circles, rate as little more than chump change. At Ford, we’ve just learned, Alan Mulally has amassed nearly $300 million in company shares over the last eight years. At the Houston-based Cheniere Energy, a fracking boom darling, the chief exec pulled in $142 million last year.

This spring has brought two new imaginative state proposals for checking executive excess.

Will these sorts of outrages ever end? On Capitol Hill, Congress shows no sign of making any new moves in that direction. But at the state level we may be in for a pleasant political surprise. This spring has brought two new imaginative state proposals for checking executive excess.

Both these initiatives seek to leverage the power of the public purse. In California, lawmakers are zeroing in on how government taxes. The new legislation pending in Rhode Island targets how government spends.

Senate bill 1372, introduced by state senators Mark DeSaulnier and Loni Hancock would tie state corporate income tax rates to corporate pay disparities.

Corporations in California currently face an 8.84 percent tax on their profits. The DeSaulnier-Hancock legislation would up that rate to 13 percent for companies that pay their top execs over 400 times what their typical workers are making.

The same legislation lowers the state corporate tax rate to 7 percent on companies with a CEO-worker pay divide less than 25-to-1. Under the bill, all firms with a ratio under 100-to-1 would end up with a tax cut, all above with a hike.

The California proposal would up the corporate tax rate to 13 percent for companies that pay their top execs over 400 times what typical workers are making.

Back in the 1970s, few firms in California or anywhere else in the United States paid their top execs over 30 or 40 times what their workers were making. In 2013, the AFL-CIO reported last month, major U.S. corporate CEOs averaged 331 times the pay that went to America’s workers.

The California legislation, notes commentator Harold Meyerson, would give top corporate execs a simple choice. They could either continue to “overpay themselves and underpay their employees,” a course of action that would up their corporate tax bill, or they could narrow their internal corporate pay divide and watch their corporate tax bill shrink.

Top execs would have a shady third option as well. They could try to game the system, by leaving their executive pay excessive and reducing their pay ratio by outsourcing and contracting out their lower-paying jobs.

The pending California legislation recognizes this possibility. The bill raises by 50 percent the tax on corporations that show a decrease in full-time employees and an increase in “contracted and foreign full-time employees.”

Analysts at the Towers Watson consultant group count 47 corporations in California where current CEO pay currently runs over 400 times state median worker pay. Among them: Oracle. The software giant’s CEO pulled in $78.4 million in 2013. Pay for the typical Oracle worker would have to rise to nearly $200,000 for Oracle to avoid the DeSaulnier-Hancock bill’s highest tax sanction.

The DeSaulnier-Hancock legislation has already made it through a key California Senate committee. But passage will take a heavy lift. The bill will need a two-thirds legislative majority, a difficult but “not unimaginable” outcome.

A pending Rhode Island bill would give a preference in state procurement to firms with modest CEO-worker pay gaps.

Rhode Island’s innovative legislation will be coming before a state Senate Finance Committee hearing next week. Co-sponsored by 14 state senators, Senate bill 2796 would give preferential treatment in state procurement to companies that pay their highest-paid executive no more than 32 times what their lowest-paid employees take home.

This preferential treatment, says bill chief sponsor Cathie Cool Rumsey, would give firms with reasonable CEO-worker pay gaps an edge in competing for state contracts.

“We need to give companies the incentive to do the right thing,” the freshman senator noted last week.

The Rhode Island legislation has already won the support of key committee chairs and the state Senate majority leader. Those senators uneasy about it, notes Cathie Cool Rumsey, fear “ruffling business feathers.”

Her message for the hesitant: Corporations that lavish pay on top executives and underpay workers are forcing low-wage families to draw on government social service programs. These corporations are costing state taxpayers millions.

Sign-up for Too MuchUnder current law, a fact sheet on the Rhode Island pay ratio bill points out, governments in America already deny contracts to firms that discriminate, in their employment practices, by race or gender. Our tax dollars, Americans believe, shouldn’t be subsidizing racial or gender inequality.

The Rhode Island bill extends this consensus. Tax dollars shouldn’t be subsidizing economic inequality either.

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