We need to curb the audacity of greed.
President Obama was right to denounce as “shameful” the fact that Wall Street financial firms paid out a total of $18.4 billion in bonuses at the end of 2008, even after taking taxpayer funds.
But we need to do more than condemn this. We need to get that money back, and then rein in runaway CEO pay across corporate America.
In the 1980s, the ratio between the compensation of the average worker and the average U.S. CEO was 42-to-1. Today, it is 344-to-1. CEOs make as much in a day as their average worker earns in a year.
After the 2002 Enron debacle, Congress established a legal framework for recovering ill-gotten gains. If top corporate managers cooked the books, claimed inflated earnings and paid themselves big bonuses, they could be compelled to pay it back.
This process is colorfully called “financial disgorgement.”
The FBI and the U.S. attorney general should press for full financial disgorgement, especially at companies receiving taxpayer support.
Unfortunately, many of these bonuses were technically legal, the result of the Bush administration’s “no-strings-attached” approach to bailing out its friends on Wall Street.
The Obama administration must put stiff conditions on any future government assistance to private companies. But the long-term solution is to change the rules governing runaway executive compensation.â¨The system of perverse incentives around CEO compensation fuels the “short-termism” that plagues corporate America — and shifts money from employees and shareholders into top management’s pockets.
For starters, Congress can immediately eliminate $18 billion in taxpayer subsidies for bloated CEO pay. That’s twice the amount that the federal government spends annually for children with disabilities and special needs.
CEO aristocrats deploy a variety of tax loopholes and accounting tricks to reduce their taxes and shift the bill onto the rest of us. Take the “hedge fund manager subsidy.” In 2007, hedge fund manager John Paulson claimed $3.8 billion in compensation, according to Alpha magazine. Thanks to a tax loophole, Paulson treated his income as capital gains. Instead of paying a 35 percent rate on his income, he paid 15 percent.
Congress should also abolish the stock option accounting game. Here’s how it works: Corporations report one salary to their accountants when they award a stock option to the CEO — and report a different salary to the Internal Revenue Service when the CEO cashes in. With this sleight of hand, companies inflate their earnings to shareholders and reduce their tax bills. Cost to the rest of us: $10 billion a year.
Some Congressional leaders, like Rep. Barbara Lee, D-Calif., are pressing for change. Her proposed legislation, the Income Equity Act, would cap the deductibility of CEO pay when it exceeds 25 times the lowest paid worker in a firm. This provision would reduce taxpayer incentives for bloated pay and generate $5 billion a year in revenue.
We can’t eliminate shameful CEO behavior. But with these concrete steps, we can stop rewarding it.
Distributed through the Progressive Media Project.