It’s not easy defending America’s overpaid CEOs, but somebody’s gotta do it. At least that seems to be the sentiment of the corporate lobby groups, politicians, and regulators who make up what might be called Washington’s CEO Pay Apologists Club.
Lately, this bunch has been on quite a tear. House Republicans’ health-care law will eliminate an Obamacare tax penalty on excessive compensation among insurance executives. Their Wall Street reform plan, scheduled for a vote this week, nixes several Dodd-Frank executive-pay reforms, including a ban on risk-inducing Wall Street bonuses and a regulation requiring publicly held corporations to report their CEO-worker pay gap.
These assaults take a certain amount of political courage at a time when corporate CEOs are making even President Donald Trump look like Mr. Popularity. In a March 2017 Harris poll, Americans gave corporate chieftains a favorability rating of only 24 percent, about half the share who approve of Trump’s job performance.
Even a majority of self-identified Republicans favor a fixed ceiling on CEO pay. Of course, none of the modest Obama-era reforms now on the chopping block went anywhere near that far. But that hasn’t dampened GOP hostility toward them.
Overpaid CEOs’ biggest champion in Washington is Representative Bill Huizenga. The western Michigan Republican’s predecessor and former boss, Pete Hoekstra, was relatively soft on this issue. “CEO pay in America has gotten way out of hand,” Hoekstra declared in 2009, admitting, “I cringe every time I see those numbers.” But the long-time congressman’s protégé appears more than comfortable with executive paychecks that now typically run hundreds of times larger than those of average U.S. workers.
Since his 2010 election, Huizenga’s white whale has been the CEO-worker pay-ratio regulation. In every session, he’s introduced a bill to liberate corporate America from what he claims is the excessive burden of calculating how much they pay their typical worker (publicly held firms already report their CEO compensation).
The Securities and Exchange Commission (SEC) estimates that the ongoing annual cost of calculating this ratio will be $58,880 per company. That’s less than one half of 1 percent of the $13.1 million received by the average S&P 500 CEO last year.
With the ratio rule kicking in for 2017 pay figures, Huizenga and other CEO pay apologists are scrambling to make it dead on arrival. Over at the SEC, Commissioner Michael Piwowar is certainly doing his part. As the agency’s acting director in February, Piwowar reopened public comment on the regulation and directed his staff to reconsider implementation. This obstructionist maneuver sparked thousands of letters from ticked off ordinary Americans, as well as from institutional investors who see extreme pay gaps as bad for business because of the effect on employee morale.
On the other side, all the major big-business lobby groups weighed in with their woeful tales of how darn hard it is to calculate median worker pay. The Business Roundtable reported that their members expect annual compliance costs per company to run up to “thousands of working hours,” which only sounds plausible if the abacus is making a comeback.
What are the CEO pay apologists really afraid of?
Beyond the embarrassment factor, there’s the fear that pay ratio data might inform spending decisions. A 2015 Harvard Business School study found American consumers are much more willing to buy products from companies with narrow CEO-worker pay gaps than those with large gaps.
Even more worrisome for overpaid CEOs is the growing movement to incorporate the pay ratio into tax and government contracting policies at the state and local levels.
In December 2016, the city council in Portland, Oregon, became the first to adopt a tax penalty on publicly traded companies with pay CEO-to-worker pay ratios of more than 100 to 1. Legislators in five states have introduced similar legislation, and San Francisco is also preparing a proposal. In Rhode Island, the state senate is considering a considering a bill that would give corporations with small pay gaps a leg up in state contracting.
While individual state and city laws won’t do much to fix our broken CEO-pay system, we could see real impact if they take off the way living wage campaigns like Fight for 15 have. In March, a U.S. Chamber of Commerce spokesperson who was clearly unnerved by the Portland law made the absurd claim in House testimony that this municipal tax was a factor in Dell’s and other publicly held corporations’ decisions to go private. (Dell made this move three years before the Portland vote.)
By killing the federal pay ratio disclosure regulation, the CEO defenders are hoping to crush state and city efforts to encourage narrower gaps. A Chamber of Commerce representative said as much at a recent Rhode Island General Assembly hearing (see minute 170).
In the end, their efforts may be for naught. In large states especially—think California and New York—authorities would have enough economic clout to get companies to report out their pay ratio data. Few major companies in the United States could afford to walk—or even inch—away from such large markets.
In the meantime, however, the Apologists Club is doing all they can to put overpaid CEOs’ minds at ease.