Should corporations in America have to annually reveal how much they pay their most typical workers compared to how much they pay their CEOs?
In 2010, Congress embraced that idea. Lawmakers plugged into the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act, a provision that requires major U.S. corporations to publicly disclose the ratio between what their CEOs and typical workers take home.
But top executives at major American corporations hated that provision. After Dodd-Frank’s passage, their armies of lobbyists worked overtime to keep mandated pay ratio disclosure from going into effect.
This lobbying blitz had an impact. The Securities and Exchange Commission, the federal agency responsible for writing the regulations necessary for implementing pay ratio disclosure, gave corporate objections to the mandate far too much credence. For five years, SEC regulators dithered.
But average Americans pushed back. Over a quarter-million of us urged the SEC to end the foot-dragging and put ratio disclosure into effect. Early in August, SEC commissioners finally acted. By a three-to-two margin, they adopted a formal rule that requires major U.S. corporations to start compiling CEO-worker pay ratio figures in 2017.
In the debate right before that SEC vote, the two commissioners opposed to ratio disclosure could barely conceal their contempt. The SEC majority, dissenting SEC commissioner Michael Piwowar charged, was giving in to the “bullying” of “Big Labor.”
Why all this angst from cheerleaders for Corporate America? The data from disclosure, Piwowar’s fellow dissenting commissioner fulminated, would be “highly likely to be misused.” In what way? Lawmakers, Piwowar warned ominously, might tie real consequences to a corporation’s CEO-worker pay ratio. In fact, he added, that’s already starting to happen.
In California last year, state senators debated taxing corporations that pay their CEOs over 400 times what their workers make at a higher tax rate than corporations with CEO-worker pay ratios of 100 or less. In Rhode Island, senators this year considered legislation that would have given companies with a CEO-worker pay ratio of 25 or less preference in the procurement process for government contracts.
President Barack Obama, an alarmed Piwowar noted, has already issued an executive order that mandates a higher minimum wage for companies with federal government contracts. With Dodd-Frank’s disclosure mandate in effect, the angry commissioner asked, what’s to stop the President from issuing an executive order that uses pay ratios to put in place a maximum wage for CEOs?
For America’s high-flying corporate CEOs, an executive order along those lines would, of course, be a nightmare. For the rest of us, a ratio-based executive order that limited CEO pay would make complete sense. We need to press Obama — and the candidates running to succeed him — to have the government deny federal contracts and tax breaks to companies that pay their CEOs more than 25 or 50 times what they pay their workers.
Back in America’s much more equal 1950s and 1960s, few corporations paid their top execs much more than 30 times what their workers were making. Today, by contrast, CEOs of major U.S. corporations are averaging well over 300 times more than typical U.S. workers.
Our tax dollars shouldn’t support inequality this staggering, either directly or indirectly. The government shouldn’t award lucrative contracts to corporations that manufacture vast mega-million fortunes for their top execs and leave their workers struggling to get by.
We actually have a precedent for linking federal procurement decisions to CEO-worker pay ratios. Over a generation ago, we decided as a nation to deny government contracts to companies that practice racial or gender discrimination in their employment practices. Our tax dollars, Americans agreed back then, shouldn’t subsidize companies that increase racial or gender inequality.
Our tax dollars shouldn’t subsidize corporations that increase our economic inequality either.