Americans for Financial Reform applauds the introduction of HR 3970, “The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act,” by Representative Lloyd Doggett (D-Texas). This bill is the House companion to an identical piece of Senate legislation introduced by Senators Jack Reed (D-R.I.) and Richard Blumenthal (D-Conn.).
Both measures would cap the tax deductibility of CEO pay at $1 million, closing loopholes in order to truly carry out the intent of the 1993 law that originally called for such a cap. By doing so, they would generate much-needed tax revenue while incentivizing shareholders and directors to take a harder look at executive compensation practices.
AFR urges members of the House and Senate to support this sensible effort to end the public subsidy for super high pay. Without such a fix, corporations will continue to take advantage of an exemption for “performance based pay” to keep on deducting outlandish levels of CEO compensation from their taxes. As the Roosevelt Institute documented in a recent report, the cap is worse than meaningless with that loophole in place, since it has led many corporations to come up with compensation formulas that encourage executives to find ways to temporarily juice up profits or share prices, at the expense of a company’s long-term wellbeing.
In addition to eliminating the performance-bonus exemption, this legislation would broaden the reach of the law to include all employees paid 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.
In 2012, 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. Multi-million-dollar pay packages continue to be the norm among top financial executives and traders. In 2012, 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.
Just this week, we learned that JPMorgan Chase CEO Jamie Dimon will be get a $20 million paycheck – a 75 percent hike – for 2013, a year in which his company had to fork over billions in settlements for an array of misdeeds committed at others’ expense.