Magnanimity It is Not

We know that Fortune 100 CEOs generally earn over 300 times the pay of their average workers; Fortune 500 CEOs earn over 200 times. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950. The numbers are obviously staggering, and the system feeds on itself; companies believing that they have to compete for top executives by lavishing absurd compensation packages have simply bid up these pay levels from merely outrageous to completely and utterly unjustifiably absurd. During the pandemic, for those ordinary employees who were not furloughed or permanently discharged, they faced average cuts to their pay of between 13% and 35%. That was a real hit. As we shall see, for top corporate executives, life remained good, very, very good.

Before the pandemic, all compensation was on the rise, although disproportionately. “The Economic Policy Institute, a Washington think tank, studied 281 large firms and found that total CEO compensation rose 16% from 2019 to 2020 while the annual pay for the average worker in those companies rose only 1.8% in that same period. The study attributed the executive compensation growth to a rebound of the stock market in 2020 after the initial pandemic slump… An analysis by the Wall Street Journal in April concluded that the median pay for the CEOs of more than 300 of the largest U.S. public companies rose to $13.7 million in 2020, up from $12.8 million a year earlier.” Hugo Martín writing for the July 16th Los Angeles Times. 

But when the pandemic started shutting down or contracting businesses, embarrassed by their riches, well-heeled CEOs took to claiming they too would share in the pain with substantial cuts to their base salaries. “Most of the base salary cuts made by executives in 2020 were ‘a public relations gimmick’ and ‘almost inconsequential,’ said Lawrence Mishel, a distinguished fellow at the Economic Policy Institute who has studied executive compensation.

“The announced cuts, experts say, could have been made to show shareholders, board members and employees that they were sharing the pain or to send a message to lawmakers who were being lobbied to approve federal grants and loans to airlines, hotels and other struggling businesses.

“David Larcker, an accounting professor and executive compensation expert at Stanford University, described salary cuts by executives as ‘a good gesture’ but added that it ‘doesn’t mean that at the end of the day these guys are earning less compensation.’” LA Times. Huh? Because “base salary” for those at the top usually represents less than 20% of their total compensation. It does not include bonuses, which are often tied to share price, options or stock appreciation rights. It also excludes the alarming level of perks that did not cease during our medical catastrophe. Spin not substance.

“The base salaries cut by executives represented a small portion of the overall compensation packages. The Economic Policy Institute study called such cuts ‘largely symbolic.’… Calculating an executive’s total compensation is not simple because most of the pay comes in the form of stock and options that only come into play if the company meets certain financial milestones over several years. This creates an added incentive for the executives to increase the value of the company’s stock — and thus increase their own compensation. The stocks and options are reported to the SEC based on the value on the day they are awarded, not on the value they may achieve when they are vested in the future…

“Representatives for several executives whose compensation packages increased in 2020 despite announced reductions in pay defended the company leaders, saying they had no role in causing the financial crisis but volunteered to cut their base salaries to demonstrate leadership amid layoffs or furloughs… They also say that the stocks and options awarded to the executives in 2020 may drop in value in the future, depending on stock market conditions and whether their companies meet specific financial milestones.

“But the Los Angeles Times analysis found three companies — including Hilton — that modified payout rules or adopted new awards in 2020 to offset the loss in compensation that their executives faced because the companies failed to meet milestones. These changes were made to retain executives or reward them for leading the company through the difficult pandemic, the companies said.” LA Times. When these executives are making tens of millions of dollars a year in total compensation, when is enough, enough?

When the Trump-led 2017 corporate tax cut dropped the rate from 35% to 21%, creating a massive and continuing trillion-dollar-plus annual deficit, income inequality soared to unprecedented levels. The reality of high-income excess was simply glossed over, and any attempt to equalize this rising egregious anomaly was simply dismissed by Republicans as “creeping socialism.”

This nation needs a major infrastructure overhaul, an economic eradication of a severely polarized spread of wealth (where the top 1% owns same wealth as the entire bottom 60% of the nation combined) and an introduction of what is standard in the rest of the developed world: programs like universal healthcare, childcare, affordable education and housing and job creating research. If you think taxing the rich more is unfair, remember how much less the same levels of executives earned as a multiple of average pay (as noted above) in 1950, 1980 and 2000. It’s time to get real and tax accordingly.

I’m Peter Dekom, and while I have no issue with those who are able to get rich, I have a very big issue with a governmental system that is so clearly biased in favor of the rich at the expense of just about everyone else.