Why it’s time to rein in CEO pay
April 12th, 2013
10:21 AM ET

Why it’s time to rein in CEO pay

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.

More from CNN: The top paid CEOs

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.

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Topics: Economy • Europe • United States

soundoff (33 Responses)
  1. Barbara

    Wow! I so wish we would do what the Europeans are doing.

    April 12, 2013 at 3:52 pm |
    • wjm

      I'm a Canadian and I'd love to see this implemented here as well. The top ceo's of Canada should be getting this message, you just can't continue to plunder your own society at that societies expense. If there are corporations who think that they can get away with this just by changing countriesn the more places that have the less likely they will be able to get away with it.

      April 12, 2013 at 4:44 pm |
      • j. von hettlingen

        I'm for reining in fat paycheques for CEOs. A company's success is not always the sole achievement of its CEOs and their salaries shouldn't come at the cost of others' low pay. Some CEOs might think of going to Asia, where they still can make this kind of money. Soon they will learn that social injustice is rejected everywhere.

        April 14, 2013 at 5:55 pm |
  2. Pete

    Because Europe is the model we should strive for? Sociology majors at my school were always the bottom rung of intelligence. Truth is these corporations are creating more jobs....overseas, because America has decided to hamper growth with regulations and a bloated government.

    April 12, 2013 at 5:49 pm |
    • Scott Cameron

      After the corporate heads busted the unions (working wage) and block any attempt to raise the minimum wage, Work under the table to get a supreme court ruling (corporations have the same rights as a person, therefore can buy any politician that will agree with them and block any effort to raise their own taxes what did we expect???? When I hear that by not taxing the rich in America will create jobs I laugh. You have to ask yourself what company has ever paid a 38% tax rate. That's why there are so many tax loopholes and makes a good argument for a flat tax, which would be much more fair for everyone. Westinghouse didn't pay a dime in taxes last year as most of the large international corporations don't. If they do, it's sure not 38%. Plenty of jobs, but here where I live in the Philippines. The president likes to boast he made 2,000,000 last year here. What he didn't say is most came from America. If we're in such dire straights and the stock market is breaking record after record, why such high employment. Makes you wonder doesn't it how ignorant the average American is about economics.

      April 12, 2013 at 7:01 pm |
      • deep blue

        The stock market record was not a record when adjusted for inflation.

        April 12, 2013 at 10:38 pm |
  3. Andrew

    The U.S.A. position cannot improve, unless U.S. companies invest into new production facilities, develop new high-quality products for world wide markets, export more at least into alliance countries, and import less. From unnecessary imports, especially from non-alliance countries, no jobs can be created.

    April 13, 2013 at 5:06 am |
  4. lui xi ung

    cut copy and paste journalist, cnn get rid of this clown and a thief as well

    April 13, 2013 at 7:56 am |
  5. Marnell

    But if 1% owns the 40% – that is not worth one cent - then the 99% own America – that is worth some money.

    April 13, 2013 at 8:08 am |
  6. Cody

    I believe the author is basically saying that we need to show that we do value hard work in this country. If an office worker is making a small salary and went to school for that job, and the CEO is making millions of dollars, and had the same education, then that makes the worker feel disfranchised. This works on a global level as well. Extremely hard jobs that pay such low salaries don't understand why their companies tops are rich, and they are just barely getting by. Every country is starting to feel this way, as Europe, the Middle East, parts of Asia, and even here show. The rich may deserve to be rich, but just like it is wrong to monopolize a business sector, it is also wrong to horde/monopolize the economy for self gain at other's expense.

    April 13, 2013 at 11:16 pm |
  7. Timmy Suckle

    I kissed my way up to VP at a health insurance company. Now I take over $600,000 of your health care dollars for NO VALUE ADDED to your health care. And that’s just me. Now think about how many other VPs, Directors, Managers, etc. are at my company alone. Now multiply that by thousands of others at hundreds of other health insurance companies. From 10 to 25% of your health care dollars go towards administration that adds NO VALUE to your health care. But my company’s PAC dollars will continue to fool you little people into thinking that a single payer system will be bad. Little people like you are so easy to fool. Little people also don’t realize that a single payer system is the ONLY system that would allow little people (as an entire country) to negotiate better health care prices. Little people don’t realize that the Medical Cartels already know that. And that is the reason why the Medical Cartels spend so much PAC money from the hospitals and doctors lobbying against a single payer system. Some little people say that a single payer system would cost you little people more. But if that were true, then wouldn’t the hospitals and doctors WANT that extra money? Yes they would. So why do the Medical Cartels lobby against a single payer system? It’s because the Medical Cartels know it would allow little people to negotiate better health care prices. And that’s what the Medical Cartels are afraid of. Period.
    But us big wigs at insurance companies, hospitals, and pharmacy companies don’t ever need to worry about health care no matter what it costs. We get our health care paid for one way or another by you little people. And we get the little people that work at our companies to contribute to our PACs. And us big wigs say it’s to protect the little peoples’ jobs. But in reality it would be in the little peoples’ best interest to NOT contribute to the PAC. Again, little people are so easy to be fooled. I won’t ever have to worry about losing my job with so many little people being brain washed by the Medical Cartels’ PAC money. Not only that, the Medical Cartels’ PAC money is used to elect so many republicans that will never allow a single payer system. Republicans have always fought against any meaningful health care reform. But that’s what our Medical Cartels’ PACs pay them for. Politicians can be bought so easily.
    Pretty soon the only people that will be able to afford health care is us big wigs. And that’s the way it should be. We don’t want you little people using up the resources when we need them. And once again, I thank you little people for capping my SS tax at the $113,700 level. Now I only pay 1.2% SS tax and you little people pay 6.2%. Also, thank you for extending my tax breaks. I’m using the extra money on my vacation houses.

    April 13, 2013 at 11:19 pm |
  8. Skorpio

    In addition, if any CEO receives company stock options compensation, they should cash out their options 5 YEARS AFTER THEY LEAVE THEIR COMPANY, so they can come up with long lasting policies to maintain a stable financial environment with out speculations.

    April 14, 2013 at 9:47 am |
  9. CarolA

    Thanks, Tammy, for telling it like it is. I am amazed at how many people are willing to be deceived and act/vote against self-interest because they have deluded themselves that somehow they can become part of the 1 percent.

    April 14, 2013 at 12:38 pm |
  10. CarolA

    Sorry, should have said Timmy.

    April 14, 2013 at 12:39 pm |
  11. paul

    Just what we need........... another dumb sociologist telling is how to do things. lol

    April 14, 2013 at 6:46 pm |
  12. Barb

    This still will not help in the long run. They will continue to remove the workers so technology can do the work for no pay. called Technological unemployment. In the long run there will be very few jobs.

    We are evolving to a moneyless society called the natural law resource based economy. The Zeitgeist Movement and the Venus Project are proposing such a change by choice so we avoid the crash the technological unemployment will bring. There are films about this on youtube as well as netflix.



    April 15, 2013 at 1:01 pm |
  13. Amythest

    This use to be a country for everyone to prosper. Now only the high paid people prosper. The rest of us are either unemployed or working 2 jobs to keep afloat. The CEO of the company that6 laid me off after 17 years nearly ran our company into the ground-but he has his multiple millions anyway for doing so. Shame of the shareholders who voted him in. I want the CEO pay reduced and based on something quantifiable and jobs created for people who want them at higher than subsistence living. I don't care how much education you have or how smart you are NOBODY is worth millions a year! Get over yourself! You are just greedy.

    April 16, 2013 at 9:29 am |
  14. P Lee

    Folks need to look up Thom Hartmann article “Roll Back the Reagan Tax Cuts.” It illustrates the rise of the CEO aristocracy in the US! Stock Option is one of the main problem, among other things!
    [ For most of American history, businesses—for-profit and nonprofit—had mission statements that were broader than simply serving the interests of shareholders and CEOs and referred instead to the long-term interests of the company, its workers, and its customers.

    Economics author Barry C. Lynn noted that “by the 1950s managers were wont to present themselves as ‘corporate stewards’ whose job was to serve ‘stockholders, employees, customers, and the public at large.”13 In other words, besides the stockholders, there are also the workers, the customers, and the general public, who are crucial to the long-term well-being of the corporation itself. CEOs actually rose through the ranks of the business and felt loyal to the companies they ran. They’d often started in the mailroom as a 20-year-old and fully expected to retire with a comfortable pension, the company in the good hands of one of their younger protégé vice presidents, who was working his or her way to that CEO status.

    That corporate mentality and mission was generally true all the way until the 1980s. But in the early Reagan years, something changed dramatically, and it’s devastated the American corporate landscape. ]

    April 16, 2013 at 2:45 pm |
  15. authorsof259tvs5t

    The study is flawed. First it compares CEO of LARGE companies to just the average workers in every company and sectors. The data probably represent just 0.4% of all companies in America, so it is not representative and comparable. We published what is the real average CEO salary in America.
    The rich is getting richer while the poor is getting poorer? We showed mathematically why this statement is false. There can never be the rich getting richer, while the poor is not, it is impossible to occur. We posted our in depth analysis for free, check them out. We also included many illustrations to guide the reader.

    For every dollar created at the top, seven dollars are created at the bottom.
    The bottom 99% increased their income by 3.2 trillion dollars from 1990 to 2009, while the top 1% only a tad less than a hundred billion.
    In 1989, the top 1% own 20% percent of all wealth. In 2009, only 17.9%. We calculated our own data from all available sources therefore we have very high confidence in it.

    April 18, 2013 at 8:37 pm |
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    April 24, 2013 at 8:51 pm |
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