Executive Pay: Building bridges between the rich and the rest

Bridge builders don’t fret about one side or the other; it’s the chasm they seek to span that’s the challenge.

President Obama recently proposed equalizing tax deductions for the wealthy and everyone else alike, changing the current provision that gives higher-income households bigger deductions for a $100 donation to some charity than a $100 contribution by a middle-class or poor home. That’s a start on a bridge between sides; CEO pay reform is needed, too.

In 2007, Standard & Poor 500 CEOs got an average of $10.5 million – 344 times the take-home pay for typical American workers. In other words, the average CEO makes in about a day what takes a typical American worker a year to earn.

That’s a chasm that’s grown enormously between the two sides: corporate chiefs and the rest of their work force. Thirty years ago, such chief executives averaged 30 to 40 times the average American worker paycheck.

“Compensation levels for private investment fund managers soared even further,” according to the annual report by the progressive groups Institute for Policy Studies and United for a Fair Economy, Executive Excess, 2008. “Last year, the top 50 hedge and private equity fund managers averaged $588 million each – more than 19,000 times as much as typical U.S. workers earned.

“CEOs in the United States, despite our current hard economic times, continue to pocket outlandishly large pay packages,” it concludes.

Many folks probably shrug and wish the wealthy well. Besides, it’s no one’s business, right?

Wrong, the report shows.

Besides workers, consumers, suppliers and shareholders of corporations, taxpayers help pay the big salaries – adding injury to insult.

“Average U.S. taxpayers subsidize excessive executive compensation — by more than $20 billion per year — via a variety of tax and accounting loopholes,” says Executive Excess, 2008. “That $20 billion [paid to] America’s most powerful is more than double what the federal government spent last year on educating America’s most vulnerable — children with disabilities.

“Billions more taxpayer dollars indirectly encourage excessive executive pay, through everything from government contracts for goods and services to corporate bailouts,” the report continues. “More than 85 percent of the public companies on the federal government’s top 100 contractors list paid their CEOs over 100 times the pay of average U.S. workers.”

The chasm between CEOs and everyone else isn’t limited to Wall Street, either. According to the most recent publicly available documents filed with the U.S. Securities and Exchange Commission, compiled by the AFL-CIO in its searchable database Executive PayWatch, here are compensation totals (salary, bonuses, stocks, etc.) for ten local corporations or companies with a big presence in the Peoria area:

AES (Ameren’s parent company) CEO Paul Hanrahan- $7.2 million

Archer-Daniels-Midland CEO Patricia Woertz- $15.2 million

Aventine Renewable Energy CEO Ronald Miller- $619,000 [in 2007]

Associated Banc-Corp. CEO Paul Beideman- $2.7 million

Bemis Co. CEO Henry Theisen- $3.6 million

Boyd Gaming Corp. CEO William Boyd- $5.8 million [in 2007]

Caterpillar Inc. CEO Jim Owens- $17.3 million [in 2007]

GateHouse Media CEO Michael Reed- $925,000 [in 2007]

RLI Corp. CEO Jonathan Michael- $3.9 million [in 2007]

Wal-Mart CEO H. Lee Scott- $29.6 million

Dozens of resolutions proposed at corporations’ annual meetings haven’t controlled CEO pay – in part because companies themselves own some of their own voting stock, in part because some shareholders think they have to pay exorbitant amounts or lose talented executives to other firms.

“Does all this mean that rising executive pay reflects some inexorable natural economic phenomenon?” the report asks. “Not at all. Public policies have fueled the executive pay explosion. We can change public policies.”

But government thus far has been unable to affect the growing divide. Last fall, the Bush administration’s $700 billion bailout plan, created by the Emergency Economic Stabilization Act of 2008, specified that to receive aid, TARP participants wouldn’t be allowed to offer pay incentives that encourage “unnecessary and excessive risks” by senior executives, couldn’t pay “golden parachutes,” and must adopt provisions preventing executive pay based on inaccurate financial statements.

It didn’t work. For instance, Merrill Lynch stepped up its 2008 bonus payments just before it merged into Bank of America, which received $20 billion in TARP aid to help complete the merger. The notorious AIG (American International Group) – now nearly 80 percent owned by U.S. taxpayers – granted millions in bonuses to its division responsible for the company’s collapse.

Obama’s American Recovery and Reinvestment Act of 2009 also sought to restrict TARP recipient executive bonuses to one-third of total compensation and to require TARP recipients to submit their executive compensation plans to a shareholder advisory vote. Its consequences are unclear, but Nobel Laureate economist Paul Krugman said corporations and their execs are the main winners.

“Taxpayers bear the cost if things go wrong,” Krugman says., “but stockholders and executives get the benefits if things go right.”

Another attempt to overcome the deep divide between the enriched elite and everyone else is the Income Equity Act of 2009 (HR 1594), introduced this spring by U.S. Rep. Barbara Lee, a California Democrat. The measure seeks to amend the Internal Revenue Code to limit the deductibility of excessive rates of executive compensation by capping annual salaries so none exceeds an amount 25 times that earned by any other full-time employee. The bill also would change the definition of compensation in the tax code to include not only wages but also bonuses, options, deferred compensation and so on.

If Capitol Hill listens to regular Americans, it could pass.

“Over the past quarter century, poll after poll has shown widespread public opposition to our contemporary CEO pay levels,” Executive Excess, 2008 concludes. “Even those individuals directly responsible for setting executive pay levels – the members of corporate boards of directors – feel we have a serious executive-pay problem.”

Another building block in bridging the gap is an increasing number of wealthy Americans who concede the need for them to share the burden. Eighty rich people this spring released an open letter to the New York state legislature to raise taxes on the affluent. Society needs “an increase in income taxes on those who can afford it – which means us.”

Former National Security Adviser Zbiginiew Brzezinski recently told cable host Joe Scarborough, “There has to be some demonstrable response to this sense of crisis from the rich people. If you made $500 million and you gave away $250 million, I think you would still be left with enough to enjoy.”

Indeed, is any CEO worth hundreds of police officers – or, for that matter, one good kindergarten teacher?

Executive PayWatch is online at www.aflcio.org/corporatewatch/paywatch/ceou/database.cfm

Executive Excess, 2008 is online at www.ips-dc.org/getfile.php?id=262

Bill Knight is an award-winning Peoria journalist who teaches at Western Illinois University. Contact him at bill.knight@hotmail.com.