When an advisory firm estimated that Walt Disney Co. chief Bob Iger would be paid as much as $423 million over four years, Sen. Bernie Sanders, I-Vt., seized on the figure as a signal of what’s wrong with the U.S. economy.
“Does Disney CEO Bob Iger have a good explanation for why he is being compensated more than $400 million, while workers at Disneyland are homeless and relying on food stamps to feed their families?” Sanders tweeted last year.
With Sanders a candidate for the Democratic nomination in 2020, the issue of massive CEO paychecks is likely to be front and center during the campaign, joining a list of attacks on corporate power. That criticism was recently amplified by Abigail Disney, Walt Disney’s grandniece. In a series of tweets on April 20, Disney argued that Iger should take a smaller bonus and redistribute parts of his award to other employees at the company.
“What difference would it make in the quality of life for those that gave up half their bonus?” she tweeted. “None. Zero. Maybe they can’t afford a third home. Or another boat. I’m not being facetious here. That’s the kind of sacrifice we’d be talking about for high-level execs.”
Other presidential candidates haven’t joined Sanders in calling out Iger, a longtime Democrat who has been raising money for party committees, but they are generally addressing the issue of corporate control and income inequality.
At the state and local level, the issue of stratospheric executive pay is getting some traction.
Take Portland, which in 2016 adopted a first-in-the-nation surtax on CEO pay that exceeds 100 times the wage of the median employee. The 10% surtax rises to 25% when a company’s pay gap exceeds a ratio of 250 to 1. Following the first year of implementation, Thomas Lannom, Portland’s revenue division director, said that $2.5 million had been collected. The highest pay ratio reported was 3,421 to 1, although the name of the company was not disclosed.
The champion of the surtax, Steve Novick, a former member of the Portland City Council, believes that other Democratic candidates could adopt it as a potent issue, particularly since President Trump criticized CEO pay during the last presidential campaign. Trump called CEO pay “a total and complete joke” in a 2015 interview on “Face the Nation,” and said that because a CEO “puts in all his friends” on corporate boards, “they get whatever they want, you know, because their friends love sitting on the board.”
Novick suggests that one of Trump’s rivals could say, “You want to make America great again, Mr. President? OK, let’s go back to the pay ratios of the ’50s.”
Boosters of the surtax are hoping it triggers other localities to adopt similar policies. Legislation using taxation as a way to target high CEO pay has been introduced in at least half a dozen states. That includes California, where state Sen. Nancy Skinner, a Democrat, recently introduced a bill that places a surtax on companies that have high CEO-to-employee compensation ratios. For example, the tax rate for corporations with a ratio of more than 300-to-1 would be 14.84%, compared with 10.84% for those under 100-to-1. Skinner says that “unfortunately, California has got one of the largest income inequality gaps of any state,” even as it is home to “some of the most profitable and highly valued corporations in the world.”
Sarah Anderson of the Institute for Policy Studies says that “the challenge has been to get politicians to stand up to the corporate lobbyists and actually do something about it.”
In the most recent Congress, Rep. Mark DeSaulnier, D-Calif., introduced legislation that would adjust the rate of income tax of a publicly traded corporation based on pay ratio. Companies with a ratio below 25-to-1 would get a 1% reduction in tax rate, while those at more than 400-to-1 would see a 3% increase. DeSaulnier said that he plans to reintroduce the legislation soon, as part of a package of bills aimed at work and labor issues and tackling income inequality.
“There is nothing motor important in this country right now,” he says.
The focus on the ratio is rooted in a key disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandates that companies publish such a figure.
Anderson notes that it has taken eight years to implement the policy, amid resistance from business groups (such as the retail industry), which argue that the ratio would be burdensome and misleading. Even some boosters of the pay-ratio tax say it still needs refinement.
Jonas Kron, senior vice president at Trillium Asset Management, a firm that promotes socially and environmentally conscious investing, believes that the rule is too flexible, giving companies leeway in calculating the ratio.
The way that the ratio has been implemented gives “95% of companies the ability to tell the best story possible,” Kron says. “That tells me that the rule is not well written and is not providing the information that Congress is telling them to provide.”
Still, Kron says his firm has been able to make use of companies’ data, especially inasmuch as they weigh proxy voting on executive pay packages. He adds that the tax has helped flag for investors the issue of income inequality and points to Amazon CEO Jeff Bezos’ challenge to other companies to match or exceed a minimum wage of $15 per hour.
“At the very least, [the ratio] is a way of conveying concern about high CEO pay and low worker pay,” Kron says.
As potent as the issue could be in 2020, it also carries risks for Democrats. Trump has attacked out-of-control CEO pay, but he’s not backed a surtax or anything like it. Rather, he’s been all about less regulation, not more.
The monopoly power of giant corporations is of concern to both parties, says Christopher Ruddy, the CEO of Newsmax and a friend of the president’s. Those on the right may not go so far as to call for breaking up large tech platforms, as Sen. Elizabeth Warren (D-Mass.) has done as part of her presidential campaign, but lawmakers like Sen. Josh Hawley (R-Mo.) have argued that the government has been too weak in enforcing antitrust laws.
Yet executive pay, Ruddy says, presents a different set of issues.
“I don’t agree with the government being involved in dictating private sector salaries,” Ruddy says. “Tax rates are fair game, but having federal officials deciding how much a private company is paying is socialism, pure and simple, and a dangerous step for economic freedom and prosperity.”
What is unclear is whether the measures aimed at executive compensation dare having the intended impact of reining in CEO pay.
Kron says that there is some initial data that CEO pay is still growing, just not as fast as before.
Andy Green, managing director of economic policy for the Center for American Progress, says that the information has helped as a tool for better corporate governance and for giving long-term investors a lever to say to a company’s executives and board, “This is not acceptable. We demand a better ratio. It is about saying: How are you treating workers? How is the pay? How is the worker training?”
What he’s more skeptical of is the idea that the disclosure of the ratio and other information related to CEO pay packages is in itself enough to make companies and their chieftains blush, especially if it means that a major politician like Sanders is singling them out. (He tweeted about Iger’s pay again this week).
“I don’t think they are going to be terribly embarrassed. I think they may be pleased,” Green says. “CEOs love to compare who gets paid what and who gets paid more.”