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ceo worker pay gap
How to Reduce the CEO-Worker Pay Gap? Impose Consequences
One promising possible consequence that U.S. lawmakers could pursue is a tax hike on corporations that pay their CEOs at 50 times or more than what they pay their most typical employees.
Jun 20, 2024
Some 87% of Americans, polling tells us, consider today’s growing gap between U.S. CEO and worker pay a serious cause for national concern.
That gap has become a cause for global concern as well. CEO-worker pay gaps in the United States, as data in a new Altrata report make clear, are essentially cementing in place our world’s current “colossal” maldistribution of income and wealth.
In the decade ahead, the Altrata report forecasts, more than a quarter of the world’s wealthy worth at least $5 million will be passing on “almost $31 trillion” to their nearest and dearest. Some 64% of that $31 trillion will be coming from the world’s richest of the rich, those “ultra wealthy” deep pockets individually worth over $30 million.
We need more than disclosure, posit advocates for fairer corporate compensation. We need consequences.
Corporate executives, Altrata calculates, will make up over 71% of those global “ultra wealthy.” Another 21% of these ultras will be entrepreneurs who either founded or co-founded their own business empires. And nearly half of all these corporate execs and entrepreneurs, add Altrata’s researchers, will be deep-pocketed souls who call the United States home, “a testament” to America’s continuing status as the nation with by far the “world’s largest” population of ultra wealthy.
In other words, the world will see over the next 10 years “the transfer of a staggering level of wealth,” and American top corporate execs will be sitting right in the center of that transfer. The billions these execs have amassed since the early 1980s—the years when CEO pay started soaring—will be vastly expanding the ranks of those who hold massive amounts of inherited wealth.
None of this, of course, should come as much of a surprise. CEO pay levels in the United States have now been making headlines for well over four decades. And this year those executive pay stats are showing what The New York Times has dubbed a “new wrinkle.”
Over the past half-dozen years, under the authority of the 2010 Dodd-Frank Act, the federal Securities and Exchange Commission has been requiring publicly traded corporations to annually disclose the ratio of their CEO pay to their median employee pay. The value of the stock rewards in that CEO pay has up until now reflected the share value of those stock rewards when the CEOs received them.
Share values can, of course, increase substantially over time. The original SEC pay-ratio regulations didn’t require corporations to figure those increased stock values into their CEO-worker pay ratios. The new SEC rules do require companies to “disclose how much CEO stock holdings increase when the market rises.”
The difference between the original and “new wrinkle” approaches can be substantial.
Under the original approach, America’s 10 most highly paid CEOs last year collected between 510 and 3,769 times what their company’s most typical employee earned, with the year’s top-paid chief exec collecting $199 million.
Under the SEC’s “new wrinkle” accounting approach, all the 10 highest-paid U.S. chief execs in 2023 saw their compensation run over $199 million, with 4 of the top 10, analysts at Equilar calculate, making over $600 million and two more making over $300 million.
By either calculation, of course, contemporary U.S. CEOs are making fantastically more than their CEO counterparts back in the middle of the 20th century. In the 1960s, the Economic Policy Institute has pointed out, chief execs at major U.S. corporations seldom pocketed much more than 20 times the pay that went to their workers. Since then, the CEO-worker pay gap has quadrupled—and then quadrupled again.
The “new wrinkle” approach the SEC has added into the annual pay disclosure mix aims to give the American public a more accurate sense of just how outrageously wide the CEO-worker pay gap now stretches. The new numbers, disclosure advocates seem to believe, will do a better job of shaming corporate boards into more compensation common sense.
The original SEC approach to disclosure certainly didn’t do much shaming. Corporations that have disclosed their CEO-worker pay ratios under that original approach have not seen “any significant change in the level of CEO pay,” notes the University of Colorado business school’s Bryce Schonberger, a co-author of a recent chief executive pay study.
But the “new wrinkle” approach, unfortunately, doesn’t seem at all likely to produce much “significant change” either. We need more than disclosure, posit advocates for fairer corporate compensation. We need consequences. What might those consequences be? Some of the nation’s top CEO pay experts explored that question earlier this week at the U.S. Senate Budget Committee’s first-ever hearing on executive pay overreach.
Among the witnesses: Sarah Anderson, the Institute For Policy Studies Global Economy Program director. One national poll last month, Anderson told the Senate panel, asked likely voters about a promising possible consequence that lawmakers could pursue: a tax hike on corporations that pay their CEOs at 50 times or more than what they pay their most typical employees.
Some 80% of those polled, noted Anderson, supported that idea, “including large majorities in every political group.”
Taxes on corporations with outrageously wide CEO-worker pay differentials, Anderson added, give corporations with huge internal pay disparities two basic choices: either narrow their pay gaps or face a bigger IRS bill at tax time.
“A company where half of employees earn less than $60,000, for instance, would have to limit CEO compensation to no more than $3 million or raise worker pay to avoid higher taxes,” Anderson explained in her testimony. “In 2022, average S&P 500 CEO pay hit $16.7 million.”
Could moves like taxing corporations that pay their top execs far more than their workers gain any traction in Congress? Maybe. Some lawmakers already back that notion. Count the chair of the Senate Budget Committee, Rhode Island’s Sheldon Whitehouse, as one of those lawmakers.
“Our tax code is corrupted and rotten, turned upside down for special interests,” the senator charged at his panel’s June 12 hearing.
What can we do about that corruption? Whitehouse advanced a number of fixes. Among them: Raise taxes on “companies that pay their CEOs more than 50 times what they pay their average worker.”
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Tesla Shareholders Approve $45 Billion Pay Package for Musk, Reject Pro-Union Measure
"It's an order of magnitude more egregious than the most egregious ever dared to ask for," an expert said of the pay package. The vote comes after Tesla fired thousands of workers.
Jun 14, 2024
Tesla shareholders on Thursday approved a pay package for CEO Elon Musk worth more than $45 billion while rejecting a pro-union measure that sought to prevent the company from interfering with worker organizing.
The shareholder vote on Musk's pay package, the exact value of which fluctuates with the company's share price, was a response to a January court ruling that voided the package because the Tesla board that had issued it had too many personal and financial ties to Musk. The CEO's supporters expect the vote to strengthen his legal case for the money.
The unsuccessful pro-union proposal, which would have required the company to respect workers' right to assemble, had been brought by Scandinavian investors acting in solidarity with Tesla mechanics in Sweden who've been on strike since October. Tesla pays less than other carmakers and Musk has been openly anti-union, even saying that he disagrees with the idea of unions.
The shareholder votes came after the company fired 14,000 workers—more than 10% of its global staff—in April and then made further cuts shortly thereafter. More Perfect Union, a nonprofit newsroom, drew attention to the layoffs in reacting to news of the shareholder votes.
Calling the pay package "outrageous," the newsroom wrote on social media that "the vote allows Musk to further enrich himself, even as Tesla falters as a company and fires thousands of workers."
BREAKING: Tesla shareholders just voted to give Elon Musk $56 billion.
This outrageous pay package is over $55 billion more than the CEO of Google gets.
The vote allows Musk to further enrich himself, even as Tesla falters as a company and fires thousands of workers.
— More Perfect Union (@MorePerfectUS) June 13, 2024
Other organizations also voiced their disapproval at the size of Musk's pay package.
"It's an order of magnitude more egregious than the most egregious ever dared to ask for," Andrew Behar, CEO of As You Sow, a shareholder advocacy nonprofit, said of the pay package, The Christian Science Monitor reportedon Thursday.
The $45 billion pay package would come in the form of Tesla stock, taking Musk's ownership stake in the company from about 13% to roughly 20.5%, The New York Timesreported.
"Working class people with pensions invested in Tesla could pay for the richest man on Earth to get even richer," More Perfect Unionwrote on social media last week.
Musk's contempt for unions is not just rhetorical: He is making a push in the courts to defang the National Labor Relations Board (NLRB), an effort that would "gut" fundamental New Deal workers' rights legislation, according toThe Nation.
At a plant in Buffalo, Tesla management fired dozens of workers last year after one of them informed Musk of plans to organize a union. Last month, the NLRB filed a complaint against Tesla for interfering with union organizing at the Buffalo plant.
There's a strong union tradition in Scandinavia, where many workers from other sectors have acted in solidarity with the striking mechanics. "Postal workers refused to deliver license plates for Tesla cars, dockers to unload Teslas from ships, and cleaners to scrub the firm’s showrooms," The Economistreported.
Union leaders see the strike as a way of preserving the "Swedish Model" that has undergirded the country's relative high quality of life and shared prosperity for decades. But organized labor is not yet as strong in emerging green industries, leading to concerns about low wages and meager benefits, the Timesreported.
Thursday's shareholder votes for the pay package and against the pro-union proposal were both lopsided, a U.S. Securities and Exchange Commission filing showed, indicating strong support for Musk's agenda.
In another Musk-influenced vote, shareholders agreed to move the Tesla's corporate registration to from Delaware to Texas—an effort to avoid the Delaware court system, which Musk believes has treated the company unfairly. The pay package case will remain in Delaware courts.
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To Tackle Inequality, Start With Nonprofit Kingpins
Why not press for legislation that denies nonprofit status—and the tax breaks that come with it—to nonprofits that pay their top execs at any rate over 20-to-1?
Apr 08, 2024
How rich have America’s super rich become? The annual compensation of Steve Schwarzman, the chief exec of the private-equity colossus Blackstone Inc., offers up one telling yardstick.
In 2023, we learned earlier this year, Schwarzman’s take-home actually fell some 30% off what he collected the year before. But Schwarzman’s overall payday for that year, even after that tanking, still amounted to a jaw-dropping $896.7 million.
The current personal net worth of Blackstone’s CEO? The Bloomberg Billionaires Index puts that figure at a sweet $42.3 billion.
Schwarzman’s current political net worth? That remains to be seen. In the 2020 presidential election cycle, this Wall Street titan spent over $27 million on donations to his favorite office-seekers, over five times what he spent in the 2016 election cycle. Since 2020, Schwarzman’s personal fortune—what he has available to shower down on his election-day favorites—has more than doubled.
Many of our nonprofit sector’s chiefs—the top execs at major hospitals, universities, and foundations, for instance—are today taking home handsome rewards that dwarf the paychecks of their employees.
The total wealth of billionaires worldwide, over that same span, has more than tripled, from $76 to $233 billion, according to just-published Forbes data. Four years ago, Forbescounted more billionaires in the United States—614—than in any other nation. Today, the latest Forbes tally tells us, some 813 billionaires call the USA home.
These billionaires—and the mere centi-millionaires so yearning for billionaire status—aren’t just prospering. They’re exerting an unmatched influence on our politics and our future.
Americans of modest means, back in the early 1900s, confronted an eerily similar political situation. They would come to understood, as the great U.S. Supreme Justice Louis Brandeis once put it, that “we can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.” They did their best to de-concentrate the nation’s wealth—and made some serious progress.
By the middle of the 20th century, thanks to that progress, America’s richest were facing a 91% federal tax on their income over $400,000, the equivalent of about $4.6 million today. Until 1980, those same rich also faced tax rates as high as 70% on the fortunes they willed at their deaths to their dearly beloveds.
Tax rates that stiff have all evaporated over the past half-century. America’s 400 richest today, analysts at the Biden White House have calculated, have of late been paying a minuscule 8.2% of their annual actual incomes in federal taxes.
How can we turn that 8.2% into something more like 82%? How can we start taxing the kingpins of the profiteering private sector at the same sort of high rates that helped the mid-20th-century United States give birth to history’s first mass middle class?
Maybe we need to start by focusing on the kingpins of the nonprofit sector.
No one in this nonprofit sector is, to be sure, currently pulling down anything close to the annual tens of millions now filling the pockets of our nation’s top corporate and financial execs. But many of our nonprofit sector’s chiefs—the top execs at major hospitals, universities, and foundations, for instance—are today taking home handsome rewards that dwarf the paychecks of their employees.
This past March, The Chronicle of Philanthropytook a look at annual chief executive compensation at 16 of America’s largest foundations. CEOs at these 16 nonprofit giants averaged $1.1 million.
On U.S. campuses, The Chronicle of Higher Educationadded earlier this year, top executive pay can run considerably higher than the compensation we see in foundation land. In 2021, the most recent year with data, some 21 presidents of private colleges and universities pocketed over $2 million.
That same year, the U.S. Senate Committee on Health, Education, Labor, and Pensions reports, the top executives at 16 of America’s largest healthcare nonprofits “averaged more than $8 million in compensation” and took home over a combined $140 million.
The nonprofits that are shelling out all these hefty rewards, let’s keep in mind, are simultaneously enjoying assorted exemptions from federal, state, and local taxes. In other words, average American taxpayers are subsidizing the hefty compensation of America’s top nonprofit execs.
And that doesn’t sit too well with growing numbers of Americans working both inside and outside of our nation’s nonprofits. In Los Angeles, trade union activists in the hospital industry have been pushing for a local ordinance that would cap hospital executive pay at $450,000, the current take-home with expenses of the president of the United States.
“The primary concern of our major health providers,” the SEIU-United Healthcare Workers West union notes, “should be serving the community, not enriching individuals.”
But plenty of that enriching is going on, and not just in big cities like Los Angeles. In 2022, the CEO of Indiana’s largest nonprofit hospital-chain collected just over $4 million in compensation. That same nonprofit’s chief operating officer came up less than $1,000 shy of $2 million, and its chief financial officer made just over $1.5 million.
Nationally, observes the Lown Institute healthcare think tank, nonprofit hospital CEOs are regularly making “as much as 60 times” more than workers at the nonprofits they manage.
How wide should that gap run? The world-renowned founder of modern management science, Peter Drucker, once told the federal Securities and Exchange Commission that no top execs should be making more than 20 times what they pay their workers.
“I have often advised managers that a 20-to-1 salary ratio,” Drucker noted, “is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies.”
Earlier this year, U.S. Senator Bernie Sanders from Vermont joined a group of other lawmakers that included Maryland’s Chris Van Hollen and California’s Barbara Lee to introduce the latest federal legislative effort to translate Drucker’s wisdom into public policy. Their proposed “Tax Excessive CEO Pay Act” would raise tax rates on corporations with CEO-to-median worker pay ratios above 50 to 1.
“The American people are sick and tired of CEOs making nearly 350 times more than their average employees,” Senator Sanders opined at the bill’s unveiling, “while over 60% of Americans live paycheck to paycheck.”
This Sanders legislation has no chance of passage, of course, at our current historical moment. Our corporate big guns simply wield too much power on our contemporary political stage.
Our nonprofit world’s big guns, meanwhile, do have political clout as well, but not nearly as much as their corporate counterparts. So why not start focusing much more of our CEO-worker pay ratio fire on the nonprofit sector? Why not press for legislation that denies nonprofit status—and the tax breaks that come with it—to nonprofits that pay their top execs at any rate over Peter Drucker’s 20-times ratio?
Successful moves in that direction would send a powerful message: that our tax system should in no way reward enterprises that pay their execs unconscionably more than what they pay their workers.
That message, in turn, could lead to legislation that denies government contracts and subsidies to profit-making enterprises that lavish rewards on their chiefs at the expense of decent compensation for their mere employees.
Where could all this lead? Maybe to a tax code that subjects all income over a modest multiple of the minimum wage to at least the 91% tax on top-bracket income dollars in effect throughout the Eisenhower years. Taxing away income above that multiple would, in turn, help lock into place a much more equal America.
Could winning limits on nonprofit executive compensation actually set us on a path to reach that much more equal future? Any journey of a thousand miles, let’s never forget, always begins with a single simple step.
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