The House is expected to vote Thursday on a Wall Street deregulation plan that would roll back several Obama-era CEO pay reforms, including a ban on banker bonuses that encourage excessive risk, and a new regulation that requires publicly held corporations to report the ratio between their CEO and median worker pay. But instead of rolling back modest pay reforms already on the books, lawmakers should be pushing for bolder solutions, such as using tax and government contracting policies that reward firms with reasonable CEO pay levels.
While President Donald Trump bashed high CEO pay on the campaign trail, since taking office, he hasn’t raised the slightest concern about his fellow Republicans’ crusade to repeal Obama-era executive compensation reforms.
If Trump truly wants to “make America great again,” one of his primary goals should be to restore CEO pay to the more rational levels of decades past. In 1980, the gap between average pay for the heads of large U.S. corporations and typical workers ran about 42 to 1. Today, this pay ratio stands at 347 to 1.
These extreme disparities are not only unfair, but they’re bad for business.
The mega-millions that flow directly into executives’ pockets every year are just a small fraction of the total cost to American companies. But the effects on employee morale carry a much higher price. When the boss makes 347 times more than you, it’s difficult to swallow the canard that “there is no ‘I’ in team.” A 2016 Glassdoor survey of 1.2 million people bears this out statistically, finding a strong correlation between high CEO pay and low employee approval ratings for their bosses.
A Brookings Institution analysis reached a similar conclusion, finding that “large differences in status” within companies can inhibit participation. And in a study published in Administrative Science Quarterly, four researchers agreed that “extreme wage differentials between workers and management discourage trust and prevent employees from seeing themselves as stakeholders.”