The timing was fitting, if late. New York Attorney General Andrew Cuomo just reported: on Thursday that nine banks bailed out with $175 billion in public funds paid their executives $32.6 billion in bonuses for 2008.
On Friday the House of Representatives voted 237-165 for a bill that could restrict executive pay.
Even though it’s not likely to bring most stratospheric executive pay closer to earth, it’s a symbolic gesture in the right direction.
Cuomo concluded that in financial circles executives expected their bonuses – supposed pay for performance – would always go up:
When the banks did well, their employers were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employee were still paid well.
Rep. Barney Frank’s “say-on-pay” legislation requires shareholder advisory votes on executive compensation and independence of compensation committee directors and consultants. It would require all financial institutions with $1 billion or more in assets to disclose their financial incentive systems and give federal regulators power to prohibit arrangements that are “inappropriate or imprudently risky.” Obama opposes the latter provision.
“I don’t think [the new House legislation] goes far enough,” says Institute for Policy Studies think tank fellow Sarah Anderson, who prepares an annual study of executive excess. “We can’t rely entirely on shareholders to solve the problems of executive pay.”
The Wall Street Journal found no evidence that say-on-pay at bailed-out firms had any effect, but a study of UK firms showed a mild effect on pay when companies did badly.
Anderson notes that even most technically independent directors and consultants are CEOs or steeped in the culture of the boardroom. “I think they’re living on another planet and think the people at the top are superhumans, and if they lost the people at the top, they’d be lost.”
The new regulation focuses exclusively on how compensation might increase risk, but Anderson argues “we also have to look at the size of the package.”
The bailout legislation in February initially set a cap of $500,000 for CEO pay, but then Treasury Sec. Timothy Geithner reinterpreted the rules in a way that took the cap off.
But Congress could block companies from deducting pay over $500,000 (or 25 times the lowest company salary), as Rep. Barbara Lee (D-CA) has proposed, which would at least stop most taxpayers from subsidizing extravagant salaries. Or it could raise taxes on the rich, not only hiking the marginal tax rate but also eliminating many loopholes, such as the limitation that exempts most of their income from Social Security and Medicare taxes,
There’s a lot of public good that could pay for, starting with health care and education.
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David Moberg, a former senior editor of In These Times, was on staff with the magazine from when it began publishing in 1976 until his passing in July 2022. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.
