CEO pay proposal is deja vu for Saboby Dan Olson, Minnesota Public Radio
St. Paul, Minn. — With public money being used to bail out troubled companies, more attention is being paid to how much those companies pay their CEOs. Congress has already imposed pay caps as part of the bank bailout, and a new bill would expand executive pay limits across the private sector.
The idea revives one advanced 18 years ago by then-Minnesota Congressman Martin Sabo.
Sabo recalls the idea came to him one day in l991 while on a trip to Mexico. Folks there were telling him Mexico's gigantic income gap between rich and poor was narrowing, making Mexico more like the United States.
However, back home, Sabo was watching the wage disparity among Americans widening.
"Maybe the problem was we were becoming more like Mexico," he says.
Sabo worried U.S. workers were losing ground. Their pay was stagnant and even declining while that of executives was rocketing to unheard-of heights. His way of drawing attention to the disparity was to propose to fellow members of Congress trimming a big business tax break.
"Companies could not deduct for tax purposes more than 25 times that which they paid the lowest paid employee," he says.
In other words, companies could pay the bosses anything they wanted, but it could be no more than 25 times the wage of the lowest paid worker if they wanted the tax break.
Sabo's intent was to encourage companies to first raise worker wages if they wanted to pay the executives more.
The proposal never got close to passage. However it kicked off a lively debate and brought to light a gift many American taxpayers didn't know they were - and still are - bestowing on companies.
Sam Pizzigati, an analyst at the left-leaning Institute for Policy Studies in Washington D.C., says many Americans are unaware of the corporate subsidy.
Eventually, Congress approved some measures to limit CEO compensation, but Pizzigati says the limits are easy to evade by granting stock options or outright gifts of stock to executives instead of higher salaries.
"They (corporations) can deduct those $25 million and $50 million and $100 million dollar pay packages off their incomes," he says.
"Back in the 1980's, top executives only made 42 times what average American workers made. We've had a huge distortion of our economy and now we're paying for that distortion, and it's time to set things right again," he says.
Pizzigati says his research shows numerous examples of CEO pay in this country being 300 times greater than that of their employees.
Sabo, who lives in Minneapolis in the district he represented, says he still keeps close tabs on current events. His idea - tying CEO compensation to worker pay as a way to raise employee wages - has new life. California congresswoman Barbara Lee introduced a similar proposal in the House earlier this session.
Sabo worries public anger over bailouts, CEO salaries and big severance packages obscures the main point. Workers aren't earning enough. Sabo says when workers don't earn enough to pay for shelter or food, the government has to step in with food stamps and housing programs.
"Ideally, wages should take care of that, and not a governmental supplement," he says.
Sabo, a self described tax-and-spend liberal, says that's a sound conservative principle.
Charles Elson, a business professor at the University of Delaware, doesn't agree that tying the tax deductibility of CEO wages to what employees earn will lift worker pay, and he opposes government caps on executive pay.
Elson opposes lavish CEO salaries because he says they divert money that belongs to shareholders, but Elson also argues the fat executive salaries are a symptom of a more worrisome problem.
He says they are the result of compliant members of boards of directors who may not be paying enough attention to what's going on in the company.
"That's troubling for the long term, because if you don't monitor the executive appropriately and the executive gets the company in trouble, it's not just the executive salary you've wasted, it's frankly the profits and the future of the organization," he says.
The CEO pay brouhaha may be sorting itself out. Elson says we are at a historic moment where public anger and shareholder anxiety are causing boards of directors to examine more closely what they're paying the boss.
Still on the table is what workers earn. Wages are still lagging, and now with the economic crash pay cuts are common for those fortunate enough to still have jobs.
- All Things Considered, 04/27/2009, 4:50 p.m.