Ending Ever-Escalating CEO Pay
Corporate America has a public relations problem. Everyone hates it. Yes, it’s still the most impressive force in global entrepreneurship. Yes, some companies provide services or products that are integral to American life. But, also definitely yes, it appears to do nothing for the vast majority of citizen stakeholders.
I’m not saying anything new. You know exactly the feelings that are triggered every time you hear about (low) corporate rates of taxation or how much money Apple or Google made last quarter.
Part of that gnawing feeling of injustice—the sensation of having been swindled while simultaneously yearning to earn as much as the swindler—has to do with executive pay. Growing inequality is constantly in the news, and CEO pay is perhaps its most crystalline example.
Even before the shooting of UnitedHealthcare Chief Executive Officer Brian Thompson, the news of the week was about Tesla CEO Elon Musk—a name we hear far too often. He is already the richest man in the world but has continued to go to court over his pay package. The Tesla board had twice agreed to a compensation package of more than $50 billion, and a judge had for the second time rejected such a package.
I won’t get into the legal details, but the net effect of the whole affair was a bunch of headlines talking about one man earning an amount that is greater than the entire annual budget of the State of Connecticut. And Rhode Island. And Delaware. And many other states, I’m sure.
Musk already makes more than 220,000 times the federal minimum wage, or around $1.6 million an hour. If you’re like me, that figure will spark little novas of rage in your gut.
That news, of course, was eclipsed by the far more tragic story of UnitedHealthcare CEO Thompson’s criminal murder. That murder was intractably immoral and despicable. It was also tied to the perception of greed among American corporations. The fact that so many Americans felt sympathy with the shooter, again, speaks to a PR problem.
But what can we do to fix this? In Switzerland, a 2013 referendum to cap executive pay to twelve times that of the lowest-paid employee failed. That kind of referendum would probably face Constitutional challenges in this country, so it’s not a tenable solution. Swiss voters didn’t like the idea, either, although they have instituted rules against “golden parachutes” and in favor of giving shareholders more say in executive pay packages.
Why not an agreed-upon salary cap between companies? Corporate America could follow the lead of sports leagues. The National Hockey League, the National Football League, and Major League Soccer all have hard salary caps for players. Don’t worry; very valuable players can still make an offensive amount of money. But they can’t make the annual budget of a state. The benefit to the leagues is that it gives every team a chance to be competitive, not just the richest teams. Major League Baseball, for example, does not have a cap, and by most measures it is a league in decline.
What if the Fortune 500 companies banded together to cap executive pay? It won’t work if only a handful of companies do it, though, and those companies will likely lose talent. But if all the companies joined together—like a league—they could institute a meaningful cap.
I can’t imagine that a well-functioning board—one that doesn’t have a sycophantic relationship with the CEO—would want to pour millions and billions of dollars into one man’s pocket (and they’re usually men) instead of creating a widely healthy financial picture for the entire company.
Maybe then corporate America could start to solve its PR problem. There are state and federal policy reforms being cooked up by the political brain trust that might solve this problem, too. But wouldn’t it be incredible if corporate America decided to do something itself? I recognize that this is a Pollyannaish view, but a girl can dream. And a corporation could one day do the right thing.