Last week, the Census Bureau released figures showing income inequality in the United States is at its highest recorded level in 50 years. Sen. Bernie Sanders (I-Vt.) has a plan to fix that. On Monday, Sanders debuted a proposal tackling CEO pay. His plan would impose a tax on companies with at least $100 million in annual revenue where the chief executive earns more than 50 times the wage of the median employee. “It is time to send a message to corporate America: If you do not end your greed and corruption, we will end it for you,” he said in a statement.
Good for Sanders! In 2018, the average S&P 500 CEO earned 287 times more than their median employee, according to an analysis by the AFL-CIO. According to yet another analysis, this one by the consultancy Equilar and the Associated Press, the typical worker would need to put in more than 150 years on the job before they brought home what their company’s CEO did in one year. Not surprisingly, Americans — after decades of stagnant wages — are furious. The staggering CEO-to-worker pay gap has played a role in everything from the Fight for $15 movement to the current GM strike. Yet there is no justification for their giant pays days — from either a bottom line or moral perspective.
The business case for outrageous CEO pay does not exist. Shareholders get better returns from companies where the CEO is underpaid relative to peers than from companies that are more generous toward their chief executive. And when company employees believe their CEO is overpaid and they are underpaid, employee turnover increases, and corporate performance suffers.
Yet this is not exactly a top concern of American CEOs. Sure, there’s lots of hand-wringing about income and wealth inequality. But they don’t actually accept that one part of the solution is literally in their control. Au contraire. In 2018, S&P CEOs received on average a 7 percent salary boost. Their workers received less than half that. Remember that the next time you read about some effort by top CEOs to make “a fundamental commitment to all of our stakeholders.” Their only fundamental commitment is to their own bottom line.
President Trump has made things worse. Though he called high CEO pay “a complete joke” in 2015, that was a typical Trump bait-and-switch. His tax “reform” package contributed to the growing gap. While supporters promised the law would help workers get a raise, in fact, workers got mere pennies — at most — and many companies took their corporate tax cut and used it to buy back their own stocks. That juices the stock price — and also happens to make CEOs, who earn a large percentage of their compensation in stock options, even wealthier.
Sanders, on the other hand, has called out companies ranging from Walmart to Disney for their CEO pay practices relative to their employees. In 2018, he introduced the Stop Bad Employers by Zeroing Out Subsidies Act, a.k.a. the Stop BEZOS bill, in reference to Amazon founder and Post owner Jeff Bezos. That bill sought to penalize companies with more than 500 employees whose workers made so little they needed to resort to food stamps and Medicaid to get by. Within a few weeks, Amazon announced it would raise minimum pay for the workers it directly employs to $15 an hour.
This yawning CEO-worker pay gap was not always thus. The Economic Policy Institute found CEOs at the top 350 publicly traded firms earned 20 times what the typical worker was paid in 1965. That rose to 58 times worker pay by the late 1980s and kept rising, peaking at a ratio of 344-to-1 in 2000. The gap shrank during the Great Recession but is now back to the chasm-like ratios of the early 2000s.
What happened? Many companies began to offer an increasing percentage of CEO pay in stock options in an attempt to tie their pay to the performance of the companies. There is precious little evidence that this strategy works. Instead, many CEOs focused on boosting short-term profits (which just coincidentally favored their own personal bottom lines) regardless of their companies’ long-term health. CEOs became celebrities as a culture of chief executive as all-knowing guru developed, perhaps as a way to justify the increasingly out-of-control pay.
One expert told The Post he believed the current Sanders proposal, if enacted, it would force some companies to hire less-than-qualified CEOs going forward. That’s balderdash. First, European and Japanese companies pay their heads significantly less than do American firms. There’s no evidence they’ve experienced a recruitment problem. Second, the higher CEO pay in the United States has not prevented bad management. It’s done the opposite: Just look at Wells Fargo, where executives enacted and promoted a hard charging sales quota that ultimately led bank staff to set up millions of fake accounts for its own customers.
If anything, shareholders and boards of directors alike should celebrate Sanders’s effort, not condemn it. He’s offering American companies a graceful way out of a dilemma, giving them a ready-made excuse they can offer the next time an avaricious CEO demands an even greater (undeserved) compensation package. If anything, the socialist’s plan will not just fight inequality but help capitalist corporations to improve their bottom lines. The irony is delicious.