I recently found an easy way to address one new piece of the financial regulations imposed by the Dodd-Frank financial reform bill, and I hope to share it here to help lessen the burden on our nation’s CEOs.
Companies will now be required to disclose in their proxy statements the median total compensation for all employees, the CEO’s annual total compensation and (most importantly) the ratio of the median employee compensation to that of the CEO. It’s going to work out to be a big number; S&P chief executives last year received median pay packages of $7.5 million, according to executive compensation research firm Equilar. The average private sector employee is paid around $40,000.
This provision in the reform bill has gone almost unnoticed. But in a recent story in the Financial Times, CEOs are pushing back against this new regulation as a “logistical nightmare.” It’s too hard to calculate, too complicated, too big.
So let’s make it easy. At Resources for Human Development, a national human services nonprofit with headquarters in Philadelphia, my CEO compensation is capped in perpetuity at a rate no more than 14 times the compensation of RHD’s lowest-paid employee. Not the median, not the average – the lowest salary.
There. Done, and done. Easy. You’re welcome, fellow CEOs.
Of course, our nation’s CEOs are not looking for an easy way to address the massive problem of income inequality in this country. They are looking for an easy way to avoid addressing it. Of course that’s wrong. In a capitalist, free-market economy some people make more than others. That’s OK. But knowledge is better than ignorance. Light is better than darkness. So let’s talk about it.
Income inequality contributes to tremendous social problems, violence and disruption at the basic levels of our society – and it’s only getting worse. The 17-th annual Executive Excess study by the Institute for Policy Studies found that the CEOs who laid the most people off turned right around and took home the biggest paychecks.
CEOs of the 50 U.S. firms that cut the most jobs last year took in 42 percent more than the average CEO at an S & P 500 firm. Hewlett-Packard CEO Mark Hurd, for example, took home $24.2 million and laid off 6,400 workers. The study found that 72 percent of the CEOs cutting the most jobs announced mass layoffs at a time of positive earnings reports, suggesting that they were “squeezing workers to boost profits and maintain high CEO pay.”
Now, bear in mind – these are supposed to be the wealth creators who need massive tax cuts so that their wealth can trickle down to the rest of us. Well, something is trickling down on us. But it ain’t wealth.
This is what the fight to maintain income disparity, to argue that it’s too hard to fix, creates. It leads to a system in which the accumulation of massive wealth for the very few at the top is the only goal, and the only result. It’s not jobs, or prosperity. Just more wealth for the rich.
Think not? One of the arguments advanced in the Financial Times story against the Dodd-Frank provision was that it would force companies to outsource more jobs. Really: “If you force us to deal with income inequality, we will lay people off.” That’s not really offering a solution.
At RHD, we recognize that income disparity is a problem. While we may not solve it, we’re willing to talk about it. We explore programs like the One Percent Solution (in which I put one percent of my CEO salary into a pool with other employees who put in one percent of their salary, too – and together we create a pool that employees draw from equally), the RHD Food Cupboard, and, yes, the bylaw we enacted that caps my CEO compensation to our lowest-paid employee.
It’s not too hard. If the median is too complicated, do the average. If the staggering compensation of stock options and boats and jets is too complicated, simplify. The only thing about all of this that is too difficult is the willingness to put the spotlight on the massive problem of income inequality in this country.
For some people, that’s too hard. But for most of us, it’s absolutely crucial.