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Executive Pay

2016 Agendas Tout CEO Pay Reform

A proliferation of 2016 progressive policy agendas include CEO pay reform.

Blogging Our Great Divide
May 14, 2015

by Sarah Anderson

The AFL-CIO has just launched the 2015 version of their annual Executive Paywatch—the most comprehensive searchable database on CEO pay.

At major U.S. companies, CEO pay increased nearly 16 percent last year, the labor researchers found. That lifted the ratio between CEO and average worker pay to 373-to-1.

Paywatch number-crunchers set their sights on Walmart this year, calculating that the retailer’s employees who make $9 per hour would’ve had to work 1,036 hours to earn as much as CEO Doug McMillon made in an hour.

Even more staggering: six descendants of Walmart founder Sam Walton have more wealth than 43 percent of America’s families combined.

The AFL-CIO’s new figures have come out amidst a proliferation of new policy agendas that include executive compensation reforms and are aimed at shaping the 2016 election campaigns.

Three of these agendas tout a reform the Institute for Policy Studies has promoted for nearly 20 years. This is the idea of closing a loophole that now allows corporations to deduct unlimited amounts of executive compensation from their federal income taxes—as long as the pay is “performance-based.” Essentially, this means the more corporations pay their CEO, the less they pay in taxes.

One of the documents calling for closure of this perverse loophole is Putting Families First: Good Jobs for All, issued by five progressive organizations: the Center for Community Change, Working Families Organization, the Leadership Conference on Civil and Human Rights, the Center for Popular Democracy, and Jobs with Justice. This campaign-oriented document is aimed at mobilizing activists across the country around a broad agenda covering wage and other labor policies, investment in clean energy and in the poorest communities, and taxing concentrated wealth.

Another is a new Roosevelt Institute report written by Joseph Stiglitz, “Rewriting the Rules of the American Economy.” The Nobel economist goes beyond closing the “performance pay” loophole to plug several other important exec pay reforms, including:

  • implementation of a Dodd-Frank provision requiring companies to disclosure their CEO-worker pay ratios
  • pegging corporate tax rates to CEO-worker pay ratios
  • requirements to report the impact of executive stock options on the dilution of shareholder value
  • mandatory votes on exec comp packages on an annual basis

Perhaps most surprising is the Report of the Commission on Inclusive Prosperity, penned by former U.S. Treasury Secretary Larry Summers and Ed Balls, the former UK Shadow Chancellor of the Exchequer. The report was released by the Center for American Progress in January, before Balls lost his seat in Parliament in the UK election last week. Summers, widely viewed as a major obstacle to progressive reforms during his stint in the Obama administration, nevertheless goes into considerable detail in his critique of the flawed executive pay system. “Horizons for investment decision making have been shortened because management compensation is strongly tied to short-term stock-market performance,” he wrote. While encouraging corporate boards to take voluntary action, he also calls on policymakers to eliminate the “performance pay” loophole and examine ways of cracking down on stock buybacks to boost executive paychecks.

A Populism 2015 Platform issued by National People’s Action, USAction, the Alliance for a Just Society and the Campaign for America’s Future, while not specific in its recommendations for CEO pay reform, does note that “We must curb perverse CEO compensation policies that give executives personal incentives to plunder their own companies.”

The four agenda documents obviously have their differences. I will just note one: three call for a financial transaction tax, a small levy on trades of stock and derivatives trades. In the United States and around the world, there is growing support for such taxes, as a way to curb short-term speculation and generate significant revenue. Some have argued that the tax could also lead indirectly to lower compensation levels in the typically bloated pay world of Wall Street. The agenda document that is mute on this point? The one by Larry Summers.

Sarah Anderson directs the Global Economy Project and co-edits at the Institute for Policy Studies. @Anderson_IPS

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