By Heather Gautney, Special to CNN
Editor’s note: Heather Gautney is an assistant professor of sociology at Fordham University, and author of ‘Protest and Organization in the Alternative Globalization Era.’ The views expressed are her own.
The United States has become one of the most unequal countries in the world. Just 1 percent of Americans own about 40 percent of our wealth, gaining all of the nation’s income growth from 2009-2011. The income of the average middle class family is lower today, in real dollars, than it was 17 years ago. And 46 million people live in poverty, including about one in five children by some estimates.
CEO pay scales are both a symptom and cause of these terrible trends.
Defenders of high pay levels argue that corporate executives are our nation’s job creators. If only that were true. Despite a record-high Dow and soaring corporate profits, our workforce remains stymied around 8 percent unemployment, a gross underestimate if you include those actively looking for work. The truth is that employers are content with boosting productivity and racing workers to the bottom.
As Robert E. Moritz, chairman of PricewaterhouseCoopers, put it: “Right now, CEOs are saying ‘I don’t really need to hire because of the productivity gains of the last few years.’” According to Julia Coronado, chief North American economist at BNP Paribas, they would rather “invest in the global economy,” which is code for moving jobs overseas.
But Europeans are resisting these trends, with some bold new moves on CEO pay.
In Switzerland, known for its sophisticated offshore banking sector, two-thirds of voters supported a recent “fat cat initiative” – a referendum that bans golden handshakes and parachutes (bonuses for joining or leaving a company) and gives shareholders a binding say on executive pay. It’s the world’s most stringent rule of its kind to date, and noncompliance carries hefty fines and jail time. Swiss activists are now building on the momentum of the new law to prevent executives from being paid more than 12 times the wage of their lowest paid employee.
In neighboring Germany, Europe’s largest fiscally solvent country, political leaders announced that they would raise the executive pay issue in the next parliament, with Chancellor Angela Merkel stating that: “Exhorbitance cannot be allowed in a free and socially minded society.”
The Dutch government, meanwhile, announced new legislation is in the works that would cap golden parachutes at a maximum of 75,000 euros ($98,000).
French President Francois Hollande has also begun to address his country’s widening wealth gap, Reuters notes, by limiting executive pay at state-controlled companies to 20 times that of the lowest paid worker – putting the hurt on CEOs in a big way. According to TIME, Henri Proglio, CEO of Électricité de France, for example, could see his annual salary cut by 68 percent – from $1.9 million to $621,000 – in order to comply with the 20 to 1 ratio. Areva President Luc Oursel could see his salary halved.
This recent flurry of legislation on disproportionate CEO pay comes on the back of a new deal among members of the European Union to cap banker bonuses to no more than a year’s salary, down from the typical five to ten times their fixed pay rates. And, last December, a critical majority agreed to implement a tax on financial transactions to raise recovery funds (it’s expected to raise $45 billion annually) to curb the kind of wild speculation we saw in the housing market. Similar legislation has been introduced here in the U.S., but to no avail.
In the land of fire and ice, Icelanders overcame a major economic crisis that saw the stock market tank by 90 percent and increased unemployment nine-fold with a “peoples’ bailout” that included debt write-offs and mortgage subsidies. Iceland took IMF money (which they’ve already repaid), but wisely refused structural adjustment. And it prosecuted bankers at the center of the crisis, some of whom are now doing jail time. Perhaps most telling, the country’s leadership engaged the public in a rewriting of the country’s constitution, setting the foundation for a radical grassroots system of direct democracy.
The U.S., for its part, responded to its homegrown crisis with Dodd-Frank, which encourages say-on-pay for CEO salaries and requires companies to disclose pay ratios between their highest and median pay-level employees. Citigroup’s Vikram Pandit got a rude awakening last year when shareholders rejected his $15 million compensation package. And the number of shareholder rejections is growing. Despite a two-year lapse since the bill passed, however, the pay-gap provision has yet to be implemented, in what appears to be an obvious buckle by the Securities and Exchange Commission under the pressure of the corporate lobby.
Strengthening our say-on-pay legislation and holding federal regulators accountable are crucial for narrowing the income gap. But they’re also vital to the health of our democracy. The Supreme Court Citizens United v. FEC decision removed limits to corporate spending on federal campaigns, further narrowing the ability of everyday people to have a say in their government. But it also created a loophole. As it stands, shareholders do not have a legal say-on-pay with regard to campaign contributions, and thus may be unwittingly supporting political platforms they actually oppose.
Reining in CEO pay is not about killing incentives or punishing success, as free market ideologues contend. It’s simply a matter of value. A more equitable arrangement acknowledges the value that hardworking people bring to our economic institutions and the social wealth of our country. And it exposes the outrageous over-valuation of investment bankers and corporate executives – inventors of financial products and management techniques with questionable social value. Certainly, subprime loans and derivatives are not 200 to 300 times the worth of what our teachers, engineers, nurses, and librarians contribute to the health and wellbeing of our society.
The American people seem to agree. Polls show that over 70 percent of voters favor restrictions on executive pay, including self-identified conservatives. An end to “fat cat” entitlements and realignment of incomes may not solve all of our social and political woes, but it would improve the lives of a great many working people – and send a strong message that no one is above the law, and no corporation too big to fail.