Americans for Financial Reform applauds yesterday’s introduction of The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act by Senators Jack Reed (D-R.I.) and Richard Blumenthal (D-Conn.).
The Reed-Blumenthal bill would cap the tax deductibility of CEO pay at $1 million, as a 1993 law only pretended to do. Taking advantage of an exemption in the law for “performance-based” pay, corporations went right on deducting outlandish levels of CEO compensation from their taxes. The new legislation would close that loophole, and incentivize shareholders and directors to take a harder look at executive compensation practices.
The performance-based pay exemption made the 1993 law’s cap meaningless. In fact, as the Roosevelt Institute documented in a recent report, the cap turned out to be worse than meaningless, since many corporations responded with compensation formulas that encouraged executive behavior intended to temporarily juice up profits or share prices, at the expense of a company’s long-term wellbeing.
The legislation introduced by Senators Reed and Blumenthal would eliminate the performance-bonus exemption and broaden the reach of the law to include all employees receiving more than $1 million a year, not just a company’s highest-paid three executives.
In 2010, U.S. corporations escaped an estimated $7 billion in taxes due to the deductibility of executive pay, according to a recent Economic Policy Institute report.
Last year, S&P 500 CEOs made 354 times as much as rank-and-file workers, on average, according to an AFL-CIO analysis of corporate filings and Bureau of Labor Statistics data. In 1982, the multiple was 42 to 1. The typical S&P 500 CEO made nearly $10 million in 2012, an 8 percent increase over 2011, according to USA Today.
In the financial sector, outlandish paychecks, linked to illusory or short-term gains, helped fuel the reckless lending and securitization that led to the financial and economic meltdown of 2008-09. Despite talk of a crackdown, multi-million-dollar pay packages continue to be the norm among top financial executives and traders. Last year, American Express CEO Kenneth Chennault made $28 million in salary, stock option gains and bonuses, by USA Today’s tally, while Capital One CEO Richard Fairbank came away with $22.6 million, and Wells Fargo CEO John Stumpf collected $19.3 million.
We urge the Senate and House to support this urgently needed effort to put teeth in the $1 million pay cap.