Join the emerging efforts to crack down on corporations that reward top executives at worker expense.
Since 2018, U.S. publicly held corporations have had to annually report the ratio between their CEO and median worker compensation. Corporate lobby groups and allied Republicans fought hard to repeal, delay, or water down this disclosure mandate, a measure initially enacted as part of the 2010 Dodd-Frank financial reform legislation. But institutional investors weighed in heavily to defend pay ratio disclosure, as did hundreds of thousands of individuals outraged about the extreme pay gaps at the vast majority of large U.S. corporations.
CEO-worker pay ratio disclosure has boosted momentum behind efforts to use tax, contracting, and subsidy policy to narrow our compensation divides. In 2016, the city of Portland, Oregon, adopted the world’s first tax penalty on corporations that pay their CEO more than 100 times their median worker pay. In November 2020, voters in San Francisco overwhelmingly approved a similar tax.
These landmark precedents have the potential to turn every level of government into a battleground over corporate pay policies that fuel inequality. Lawmakers in at least nine U.S. states and in the U.S. Congress have also introduced pay ratio taxes. India and the UK are also now requiring pay ratio disclosure.
General Resources on CEO-Worker Pay Ratios
- AFL-CIO Paywatch (includes searchable database)
- Bloomberg pay ratio tracker
- Executive Excess 2022 (IPS report finding the CEOs at America’s largest low-wage employers are grabbing huge raises while workers and consumers struggle with rising costs)
- Sarah Anderson, Testimony Before the Senate Budget Committee, March 17, 2021
- Executive Excess 2021: Pandemic Pay Plunder (IPS report on low-wage corporations that rigged their own rules to inflate CEO pay while their workers lost hours, jobs, and lives.)
- Executive Excess 2019: Making Corporations Pay for Big Pay Gaps (IPS report finding that 50 US publicly held corporations had CEO-median worker pay gaps of more than 1,000 to 1 in 2018)
- Fact Sheet: CEO Pay Reform is a Transpartisan Issue
- How Taxpayers Subsidize Giant Corporate Pay Gaps (IPS report analyzing pay gaps at the federal government’s top 50 contractors and top 50 subsidy recipients)
Resources on the Portland CEO Pay Tax:
- Article in the Oregonian with revenue figures through 2020 and a listing of top companies paying the tax.
- Article in The Nation with Portland surtax 1st year revenue figures
- Institute for Policy Studies Backgrounder on the Portland CEO-worker Pay Ratio Surtax
- Text of the Portland legislation
- City of Portland Bureau of Revenue assessment of the legislation
- List of the more than 500 publicly traded businesses that “do business” in Portland that may be subject to the surtax.
Resources on the San Francisco CEO Pay Tax:
- Institute for Policy Studies Backgrounder, including comparison of San Francisco and Portland models
- City of San Francisco revenue assessment of the legislation
- San Franciscans Vote Overwhelmingly to Rein in Overpaid CEOs
Federal Proposals Related to CEO-Worker Pay Ratios:
- Rep. Jan Schakowsky introduced the Patriotic Corporations of America Act (H.R. 4186) in 2021 to extend tax breaks and federal contracting preferences to companies that meet good behavior benchmarks, including CEO-worker pay ratios of 100-1 or less.
- Senate Finance Committee Chair Ron Wyden floated the idea of an excise tax on corporations with big gaps between CEO and worker pay during the Build Back Better negotiations. It was modeled on the Tax Excessive CEO Pay Act.
- The Tax Excessive CEO Pay Act would apply graduated tax increases on corporations with large CEO-median worker pay gaps, beginning with 0.5 percentage points on corporations with pay ratios of 50 to 1 and rising to 5 percentage points on firms with ratios above 500 to 1. In the 117th Congress: (S.794/HR 1979) Support materials.
- Rep. Mark DeSaulnier (D-CA) introduced a similar bill, the CEO Accountability and Responsibility Act (H.R. 3301). This bill would also offer preferential treatment in federal contracts to companies with pay ratios below 50:1.
- Sen. Sanders (I-Vt.) and Rep. Ro Khanna (D-CA) authored a bill in the 116th Congress (S. 3640) that would prohibit stock buybacks where CEO pay exceeds 150 times the compensation that goes to a company’s median pay.
- Sen. Jeff Merkeley (D-OR) introduced a bill in the 116th Congress, the Equity in Compensation Act (S. 2312), which would apply graduated surtaxes on corporate income tax liabilities, beginning with 2% on corporations with pay ratios of 30 to 1 and rising to 10% on firms with with ratios above 1,000 to 1.
- Rep. Nydia Velázquez (D-NY) introduced a bill, the Greater Accountability in Pay Act (H.R. 4242), which would require publicly held corporations to annually disclose the ratio between pay raises for top executives and median employees.
State Legislative Proposals Related to CEO-Worker Pay Ratios:
- California (SB 37)
- Connecticut (HB 6373) (A separate state general assembly bill, HB 6747, would disqualify companies with CEO-worker pay ratios of more than 100 to 1 for state subsidies and grants.)
- Hawaii (SB 747)
- Illinois (HB 3335)
- Massachusetts (S.3369/S. 286)
- Minnesota (HF 65)
- New York (S.1659 and A.7454)
- Rhode Island (H. 5141 and S. 0318) (A separate RI state senate bill, S. 0211, would give preferential treatment in state contracting to corporations that pay their CEOs no more than 25 times their median worker pay)
- Washington (HB 1681)
Letters to the SEC in Support of CEO-Worker Pay Ratio Disclosure:
A wide range of institutional investors, policymakers, and academics have pressed the SEC for clear and strong federal regulations on CEO pay ratio disclosure. For a full list, see 2017 submissions and 2013/2015 submissions.
- State Treasurers Press SEC Nominee, Congress on CEO Pay Disclosure Rule
- Rep. Keith Ellison, et al., Members of Congress
- Senator Robert Menendez and 8 other senators
- Senator Tammy Baldwin
- 100 investors representing $3 trillion in assets under management
- Network for Sustainable Financial Markets
- Religious Society of Friends
- SharePower Responsible Investing, Inc.
- Trillium Asset Management
- US Social Investment Forum
- Walden Asset Management
- Lynne Dallas, Professor of Law, University of San Diego
- Sue P. Ravenscroft, Roger P. Murphy Professor of Accounting, Iowa State University
- Institute for Policy Studies
Inequality.org Analysis and Coverage of CEO Pay Excess:
- Low-Wage Employers Spent Billions Inflating CEO Pay Through Stock Buybacks
- Our Outrageous CEO-Worker Pay Gap: Unfair and Unwise
- From France, an Unexpected Call for a Ceiling on CEO Pay
- Biden Budget Pushes Back Against CEO Pay-Inflating Buybacks
- How Excessive CEO Pay Undermines Enterprise Effectiveness and Efficiency in the 21st Century
- Taxpayers are Subsidizing Soaring CEO Pay at Pentagon Contractors
- Four CEO Pay-Related Taxes in Play on Capitol Hill
- To Break the Corporate Tax Logjam, Tax Overinflated CEO Pay
- Tying Equity Strings on the Semiconductor Subsidies
- How Corporations Pumped Up CEO Pay While Their Low-Wage Workers Suffered in the Pandemic
- Executive Excess: How Taxpayers Subsidize Giant Corporate Pay Gaps
- Taxpayers Are Footing the Bill for Sky-High CEO Salaries
- Rep. Keith Ellison Takes a Hard Look at New Pay Ratio Data
- Historic CEO Pay Tax Passes in Portland
- Tracking Corporate Responses to the Tax Scam
- How to Track CEO-Worker Pay Ratios
- Del Monte’s Pay Ratio is Largest to Date at 1,465:1
- Eleven ‘Small’ Banks that Would Gain from the Senate Banking Bill Sport Hefty Pay Gaps
- Bloomberg Q&A on New CEO-Worker Pay Ratio Data
- A New Landmark in CEO-Worker Pay Ratio Disclosure
- For Minimum Decency, a Maximum Wage
Media Coverage of the CEO Pay Surtax and Other Similar Proposals:
- Insider: How to Crack Down on Greedy CEOs
- The Hill: To break the corporate tax logjam, tax overinflated CEO pay
- The Guardian: US millionaire CEOs saw 29% pay raise while workers’ pay fell, report finds
- Wall Street Journal: Bernie Sanders Targets CEO Pay in Effort to Keep Spotlight on Workers
- CNN.com: Some CEOs earn 1,000 times more than their workers. Here’s how to stop that.
- Detroit Free Press: The US should tax excessive CEO compensation (by Rep. Tlaib)
- Washington Post: Bernie Sanders pushes new tax targeting large companies where CEOs earn far more than workers
- Marketwatch: Paying the boss 1,000 times more than a worker encourages reckless corporate behavior
- Robert Reich: Former Labor Secretary calls for tax on corporations with CEO-worker pay gaps above 100 to 1
- Vox: A plan to fix inequality would target CEOs who make 100 times more than their employees
- The Nation: When Corporations Pay CEOs Way More than Workers, Make Them Pay
- The Financial Times: US companies reveal pay gap between bosses and workers
- The Guardian: Study finds extreme CEO-worker pay disparity at taxpayer-supported companies
- USA Today: CEO vs. worker pay: Federal contractors have big compensation gaps
- The Guardian: No CEO should earn 1,000 times more than a regular employee
- Orange Country Register: Here’s how much CEOs’ pay has gone up and down — but mostly up and up
- New York Times: Portland Adopts Surcharge on CEO Pay in Move vs. Income Inequality
- The Nation: This City Just Came Up With a Novel Way to Fight Inequality: Taxing Corporations With Extreme Pay Gaps
- Fast Company: Why Portland’s Tax On CEO Pay Matters
- Moyers & Company: Local Governments Aren’t Waiting for a Federal Fix for Runaway CEO Pay
- Bloomberg: CEO Pay Targeted in San Francisco, Rhode Island
- Bloomberg: Income Inequality Battle Brewing At State-Level
- Fortune: Donald Trump Needs to Do Something About High CEO Pay
- American Prospect: Corporate Allies in Washington Take Aim at CEO Pay Reform
Academic Resources and Research About CEO-Worker Pay Gaps:
- Ethan Rouen, Rethinking Measurement of Pay Disparity and its Relation to Firm Performance, Harvard Business School, 2017. This study of S&P 1500 firms looked at pay gaps within firms over a multi-year period. The findings indicate that large disparities harm the bottom line, particularly when a gap reflects an “overpaid” CEO and “underpaid” employees — in other words, when pay levels don’t reflect objective economic factors. Companies with these overpaid CEOs and underpaid workers saw significantly higher levels of employee dissatisfaction and turnover, as well as lower sales.
- Samuel Block, Income Inequality and the Intracorporate Pay Gap, MSCI, 2016. Labor productivity, measured by sales per employee, was lower for companies with higher intra-corporate pay gaps on average during the study period.
- Peter Drucker, The Changing World of the Executive (Drucker Library) 2010. In a 1982 essay in this collection, Drucker wrote that no executive should make more than 20 times the compensation of their workers. “I have often advised managers that a 20-to-1 salary ratio is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies,” he added in a 1998 interview.
- Douglas M. Cowherd and David I. Levine, Product Quality and Pay Equity Between Lower-Level Employees and Top Management: An Investigation of Distributive Justice Theory, Administrative Science Quarterly, 1992. Finds that narrower pay gaps are positively related to business unit product quality.
- George A. Akerlof and Janet L. Yellen, The Fair Wage-Effort Hypothesis and Unemployment, The Quarterly Journal of Economics, 1990. The Fair Wage-Effort theory posits that pay disparity causes resentment among lower-level employees, leading them to take actions, such as shirking or quitting, that undermine enterprise effectiveness. “The theory conforms to common sense, and to sociological and psychological theory and observation,” Yellen and her co-author observed.
- Yihui Pan, Elena S. Pikulina, Stephan Siegel, and Tracy Yue Wang, Do Equity Markets Care About Income Inequality? Evidence from Pay Ratio Disclosure, The Journal of Finance, 2022. Results suggest that equity markets are concerned about income inequality and assess high within-firm pay dispersion negatively.
- Andrew Chamberlain and Ruoyan Huang, What Makes a Great CEO?, Glassdoor, 2016. Analysis of 2016 data from 1.2 million employed individuals suggests a statistical link between high CEO pay and low CEO approval ratings among employees.
- James B. Wade, Charles A. O’Reilly, III, and Timothy G. Pollock, (2006) Overpaid CEOs and Underpaid Managers: Fairness and Executive Compensation, Organization Science, 2006. Evidence suggests that CEOs serve as a key referent for employees in determining whether their own situation is “fair,” and this influences their reactions to their own compensation. When lower-level managers are underpaid relative to the CEO, they are more likely to leave the organization.
- Bhavya Mohan, Michael I. Norton, and Rohit Deshpande, Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios, Harvard Business School Marketing Unit Working Paper, 2015. Six studies analyzed in this paper show that pay ratio disclosure affects purchase intention of consumers via perceptions of wage fairness. The disclosure of a retailer’s high pay ratio (e.g., 1000 to 1) reduces purchase intention relative to firms with lower ratios (e.g., 5 to 1 or 60 to 1). Lower pay ratios improve consumer perceptions across a range of products at different price points, increase consumer ratings of both firm warmth and firm competence, and enhance perceptions of Democrats and Independents without alienating Republican consumers. A firm with a high ratio must offer a 50% price discount to garner as favorable consumer impressions as a firm that charges full price but features a lower ratio.
- Deniz Anginer, Jinjing Liu, Cindy A Schipani, and H. Nejat Seyhun, Should the CEO Pay Ratio be Regulated?, The Journal of Corporation Law, 2019. Finds that the Pay Ratio variable is more informative about the agency costs excessive CEO power imposes on shareholders than the Pay Slice variable (i.e. the ratio of CEO’s pay to top five executives’ compensation). The cost of capital increases significantly as Pay Ratio increases and Pay Ratio dominates and eliminates the explanatory power of Pay Slice. Their research suggests that to understand the costs imposed on shareholders by excessive CEO power, one also need to pay attention to the Pay Ratio variable.
- David I. Levine, Reinventing the Workplace: How Business and Employees Can Both Win, Brookings Institution Press, 1995. Finds that narrow differences in wages and status help develop an atmosphere of trust and confidence between workers and management, reinforcing the atmosphere of participation. Employees often feel large wage differentials are unfair, and employees who feel disadvantaged are less supportive of the goals of the highly rewarded group.
- Eileen Applebaum, Thomas Bailey, Peter Berg, and Arne L. Kalleberg, Manufacturing Advantage: Why High Performance Work Systems Pay Off, Cornell University Press, 1999. Finds that “extreme wage differentials between workers and management discourage trust and prevent employees from seeing themselves as stakeholders.”
- Matt Bloom and John G. Michel, The Relationships Among Organizational Context, Pay Dispersion, and Among Managerial Turnover, Academy of Management Journal, 2002. Two Notre Dame researchers analyzed turnover rates, over a five-year period, among executives at nearly 500 firms. Senior executives at companies with wide management pay gaps, they found, appear twice as likely to exit as senior executives at companies where pay was more equally distributed.
- Steven S. Crawford, Karen K. Nelson & Brian R. Rountree, Mind the Gap: CEO‐Employee Pay Ratios and the Shareholder Say on Pay Votes, January 2016. Finds a positive association between shareholders’ dissent on “say on pay” proposals and higher levels of CEO-employee pay ratios.
- Jeffrey Pfeffer, Human Resources from an Organizational Behavior Perspective: Some Paradoxes Explained, Journal of Economic Perspectives, Vol. 21 (2007): Finds that organizations with a high disparity of pay between top earners and those at the bottom suffer a decline in employee morale and commitment to the organization.
Inequality.org co-editor Sarah Anderson on how CEOs are profiting during the pandemic and what we can do about it.
Inequality.org co-editor Sarah Anderson calls on President Biden to take action on excessive CEO pay.
The Institute for Policy Studies and Patriotic Millionaires co-hosted this discussion on the need for public policy to rein in CEO pay with Abigail Disney, Gravity Payments CEO Dan Price, IPS expert Sarah Anderson, Patriotic Millionaires President Erica Payne, and CBS contributor Jamal Simmons.
Inequality.org co-editor Sarah Anderson shares research on corporate boards that rigged rules during the pandemic to inflate CEO pay, bolstering the case for tax policy to incentivize narrower pay gaps.
Inequality.org co-editor Sarah Anderson shares findings from an Institute for Policy Studies report on CEO-worker pay gaps at top federal contractors and subsidy recipients.
Inequality.org co-editor Sarah Anderson explains how to build on CEO-worker pay ratio disclosure by linking this inequality indicator to tax and contracting policies.
Inequality.org co-editor Sarah Anderson discusses CEO-worker pay ratio policies on The Zero Hour with RJ Eskow.