Democrats and Republicans alike are vowing to impose executive compensation restrictions on corporations that receive emergency coronavirus crisis assistance. On a rhetorical level, they all claim to believe that taxpayers should not be padding the pockets of executives instead of mitigating a national economic crisis.
But huge differences are emerging when it comes to their actual policy proposals.
On March 20, one hundred Democrats sent a joint letter to House Speaker Pelosi listing a number of corporate accountability conditions for emergency relief, beginning with strong demands for protections against worker layoffs, wage cuts, and labor rights violations. The Democrats also demand restrictions on executive pay that would have real bite.
These include a cap on senior executive pay of no more than 50 times the pay of the firm’s median worker. Linking CEO pay to a multiple of worker pay would prevent taxpayer subsidies from pumping up executive pay and, at the same time, create an incentive to narrow internal pay divides by lifting up the bottom of the wage scale.
As I explain in this CNN oped, there should be bipartisan potential for a restriction based on the CEO-worker pay gap. A Stanford survey, for instance, found a majority of ordinary Republicans favor a cap on CEO pay relative to worker pay at all companies.
Organized by Rep. Peter DeFazio (D-OR), Chairman of the House Committee on Transportation, and Rep. Lloyd Doggett (D-TX), Chairman of the House Ways and Means Health Subcommittee, the Democrats’ letter includes two other conditions that affect executive pay: a ban on stock buybacks, which inflate equity-based exec compensation, and a moratorium on executive bonuses until federal funds are repaid. The letter also calls for bailout firms to include worker representatives on their boards, a policy that has helped restrain executive excess in many European countries.
Congressional Progressive Caucus Co-Chairs Pramila Jayapal (D-WA) and Mark Pocan (D-WI) also included a 50-1 pay ratio cap at bailed-out companies in an extensive list of crisis response demands they sent to Pelosi.
These bold Democratic proposals stand in stark contrast to the Senate Republican plan’s pathetically weak restrictions on executive compensation at airlines and other distressed companies that receive emergency financial assistance. Despite their vows to restrict CEO pay, the Republican plan merely bans pay raises for two years for executives who earned more than $425,000 in 2019. In other words, if a CEO made $10 million in 2019, he or she could earn $10 million in 2020 and 2021. If an executive made $424,999 in 2019, he or she would face no pay limits whatsoever.
The Republican plan would do nothing to prevent massive CEO windfalls through their equity-based pay during a taxpayer-funded economic recovery. Say a CEO got a stock grant worth $9 million in 2019. To match that value in 2020, when share prices are very low, the firm would have to award many more shares, which could easily balloon in value in a recovery. Many Wall Street firms pulled this maneuver after the 2008 crash.
Proposals to merely ban executive bonuses for bailed-out firms, even if extended for a few years after they repay the public funds, could also be easily circumvented by shifting pay into other forms of compensation, including stock-based pay.
The Republicans’ proposal regarding golden parachutes is also laughable. These payouts for departing executives would merely be limited to twice the value of their 2019 compensation. In 2018 (the most recent year for which data are available), the CEOs of the five largest U.S. airlines made an average of $10 million. So taxpayers could be required to cover the bill for golden parachutes of $20 million or more.
Saying you’re going to limit CEO pay at bailed-out corporations and then merely proposing to freeze that pay at pre-virus levels — the trick President Trump and other Republicans are trying to pull off — is like is like chasing burglars out of your house and then calling them an Uber for their getaway.
Taxpayer bailouts should not help corporate CEOs escape the crisis without a scratch while so many others are suffering.