Yesterday, The Wall Street Journal released a new bombshell report on the record-breaking rise in CEO pay. For this week’s Closer Look, we want to highlight some of the report’s biggest findings and the ways in which they underscore the urgent need to tackle excessive CEO pay and wealth in America.
According to the report, median pay for CEOs at American S&P 500 companies rose to a record $14.7 million in 2021. This makes 2021 the sixth year in a row that CEO pay has broken records. Last year, the 25 highest grossing CEOs in America earned more than $35 million, with the top 9 earning more than $50 million. These findings and more follow the now well-known trend of the ultra-rich getting even richer over the course of the pandemic.
Another major finding from the Journal’s analysis is that the highest earning CEOs did not always head the most successful companies. The link between executive compensation and performance is nowhere near as solid as those executives would like you to think. In fact, only one of the 25 highest paid CEOs directed one of the 25 top performing companies last year. On the other end of the spectrum, 6 of the 25 highest paid CEOs – all of whom made over 380 times their respective median employees – managed companies that actually witnessed decreases in shareholder returns in 2021.
There is no reason why C-suite executives at America’s largest companies should be making this much money while the average American worker hasn’t gotten a real raise in decades. There is no reason why CEO pay should be breaking records during a pandemic that forced 22 million Americans to file for unemployment. There is no reason why CEOs like Peter Kern from Expedia, Tim Cook from Apple, and David Zaslav from Warner Bros should be making over 1000 times more than their companies’ median employees. And there is absolutely, positively no reason why CEOs should be making that much money when their job performance is lackluster.
It is high time that we reign in excessive corporate compensation in America. CEO pay is out of control, and ordinary workers are suffering the consequences. To start, we can reform corporate governance by guaranteeing workers a seat on corporate boards, ensure that executive pay is more closely tied to company performance, and, finally, reform the tax code to ensure that grossly overpaid CEOs are at the very least paying their fair share in taxes and giving back to society just as much as they’re getting out of it. Perhaps the best legislative option in front of us is a bill proposed last year by Senator Sanders that would raise taxes on corporations with excessive CEO-to-worker pay gaps, giving corporations a significant financial incentive to limit excessive CEO pay.
We should do all of this and more to tackle excessive CEO pay, but there’s something arguably even more important to take away from the Journal’s analysis: the need to tackle excessive CEO wealth in America.
According to the report, Warren Buffett, the fifth richest man in the world, received a measly $373,204 in pay from Berkshire Hathaway last year. Meanwhile, Elon Musk, the richest man in the world, received nothing in compensation from Tesla in 2021. While they may be surprising, these findings drive home the fact that the highest paid executives are not necessarily the wealthiest among us. Just because Elon Musk and Warren Buffett didn’t receive big paychecks from their companies in 2021, that doesn’t mean that they didn’t acquire and hoard boatloads of money elsewhere.
Thankfully, just like with CEO pay, there are a number of policy solutions that could be enacted to tackle runaway CEO wealth. Raising the minimum wage, strengthening and protecting unions, bolstering social safety nets, and sharing stock ownership of companies with workers are all measures that would go a long way in ensuring that wealth is “pre-distributed” more evenly between ultra-wealthy CEOs like Elon Musk and Warren Buffett and their workers.
Furthermore, we can also “re-distribute” wealth through taxes. We should raise tax rates on investment income, tax unrealized capital gains on a regular basis, and institute an annual net wealth tax as measures to promote a more equitable society.
Thankfully, some of these policy solutions are already being floated on Capitol Hill. President Biden’s budget request for the 2023 fiscal year includes an annual Billionaire Minimum Income Tax as well as a tax on corporations lining executives’ pockets in the form of stock buybacks. Senator Warren and Representatives Jayapal and Boyle have also proposed an Ultra-Millionaire Tax and Senator Wyden and Representative Bowman have proposed taxes on unrealized capital gains.
Before the window of political opportunity potentially closes with the 2022 midterm elections, Democrats must do whatever is necessary to confront excessive CEO compensation and wealth. As an added bonus, they may convince voters that they’re on the side of the people – not the side of record-rich CEOs.