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The Scruffy and the Stuffy Agree: Cap CEO Pay

Research & Commentary
February 09, 2013


From hiking trails in Oregon to boardrooms in Berlin, critics of our staggeringly unequal corporate order are calling for limits that link executive compensation to worker paychecks

By Sam Pizzigati

When do societies start taking a new idea seriously? Easy. New ideas start gaining traction when starkly different sorts of people start standing up as their champions.

Just this exact process now seems to be unfolding on the notion some have dubbed the “maximum wage,” the idea that we should limit the income our society’s most exalted executives take home to a specific multiple of the income that goes to ordinary mortals.

Already this winter we’ve seen striking pitches for capping executive incomes emerge from two camps about as different as they could be.

The first came last month with the publication of new environmental movement manifesto, Enough Is Enough: Building a Sustainable Economy in a World of Finite Resources. The authors — Oregon conservationist Rob Dietz and UK ecological economist Dan O’Neill — have become familiar fixtures at confabs that scruffy tree-huggers frequent.

You won’t find anything the least bit scruffy about the members of the German Corporate Governance Commission. The executives, corporate directors, and economists on this panel hobnob with Germany’s most famous power suits. Indeed, they don’t just hobnob. They define the official national code of conduct that determines how German corporations are expected to behave.

All major German corporations — from Adidas and Bayer to Siemens and Volkswagen — subscribe to this code. Under Germany’s Stock Corporation Act, these companies must declare every year that they remain in code compliance.[pullquote]The newly proposed German corporate code amendments would require companies to set executive pay maximums.[/pullquote]

Last week, the members of the German Corporate Governance Commission released their latest code amendments. Included in them: a mandate that all German publicly traded firms place a cap on executive compensation, “both in terms of its total amount as well as in terms of its individual components.”

This bold recommendation comes on the heels of growing German public outrage over rising executive pay. This public sentiment, Commission chair Klaus-Peter Mueller acknowledges, “has not been without influence on the commission.”

The new German code amendments do not set any specific dollar figure for a national corporate pay maximum. The amendments — set to be finalized this May — leave the specific executive pay maximum up to each corporation.

But Commission members made it clear last week that current pay levels — Germany’s highest-paid CEO, Volkswagen’s Martin Winterkorn, collected $23.7 million in 2011 — have soared far too high.

“The system of remuneration should not be open-ended,” explains Commission member Manfred Gentz, the former board chair at Germany’s largest financial securities trading center.

Germany’s top corporations, adds the German Corporate Governance Commission, should set the soon-to-be-required new executive pay maximums in relation to the rewards that go to ordinary employees.[pullquote]In Spain, many sizable enterprises are already linking executive compensation directly to worker pay.[/pullquote]

Some significant industrial enterprises in the world today, Rob Dietz and Dan O’Neill point out in their new Enough Is Enough, are already doing just that. In Spain, the manufacturing and retail enterprises that belong to the Mondragon cooperative network limit top pay to three to nine times worker compensation.

“Maximum pay differentials” like this, Dietz and O’Neil contend, need to become the worldwide standard. The two see these differentials as an essential weapon against growing global inequality. And they see the struggle against inequality as a prime key to the struggle for an environmentally sustainable Earth.

“Large income gaps,” the pair note, “lead to unhealthy status competition and consumption of materials and energy beyond what’s necessary to meet people’s needs.”

Humanity, Dietz and O’Neil point out, is already “consuming resources and emitting wastes” at a rate “50 percent faster than what’s sustainable.” We’ll never end the “overconsumption of nonrenewable resources” and the “overexploitation of renewable resources” as long as our economy “forever chases more.”

Sign up for To MuchIn the end, both the scruffy around Dietz and O’Neill and the stuffy on Germany’s Corporate Governance Commission seem to have the same goal in mind: good stewardship.

Excessive executive pay, both camps have come to understand, undercuts that good stewardship. Outrageously high executive pay gives powerful corporate executives an incentive to behave outrageously — within their enterprises and toward our Earth — as they chase after ever-greater rewards.

We need limits on these powerful. The scruffy and the stuffy, working together, might just be able to start putting these limits in place.

Veteran labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book, The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, has just been published.

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