Cheering for AIG bonuses
More of us might do so if CEOs' pay were tied to that of the rank and file.
Few issues incense citizens more than the exorbitant bonuses awarded to corporate executives. Just this week, published reports said AIG, which accepted a $180 billion government bailout, is set to pay about $100 million in bonuses to its employees.
And yet little has been done to stop the practice. It's as if it is somehow un-American to prohibit our entrepreneurs and executives from earning more and more millions, even when average workers are struggling to make ends meet, and taxpayers are footing the bill.
I offer a legislative proposal that would make everyone wish top executives the best of luck in their quest for untold riches: Limit the compensation of executives of publicly traded companies, companies receiving public aid, and companies doing business with the government to no more than 100 times the salary of each company's lowest-paid full-time employee.
For example, if the lowest-paid worker at a company earns the federal minimum wage - currently $7.25 an hour, or an annual income of $15,080 at full time - then the total compensation for the top executive (including stock options and yachts) would be limited to about $1.5 million. If a company pays its lowest-paid worker a "living wage" - for a single mother with one child living in New York City, $19.66 an hour, or $40,893 a year - the top executive could take home more than $4 million.
By way of comparison, the current average annual compensation of S&P 500 CEOs is more than $10 million, which is more than 300 times the annual pay of the average worker in those corporations.
Americans don't necessarily begrudge executives their millions. Bill Gates and Warren Buffett, for example, are generally revered and envied. Sports figures are also heroes despite the millions they earn. And American workers don't live in abject poverty. Compared to workers around the world, they do very well.
The problem is not the absolute amount of bonuses, but rather the disparity between the haves and have-nots. Studies have shown that income disparity:
Disrupts a society's social cohesion, reduces social capital and social mobility, and isolates us from each other.
Lowers the health, well-being, and educational achievement of a society's children.
Contributes to stress disorders, including obesity, substance abuse, and cardiovascular disease, and may be a more important cause of mental disorders and distress than poverty itself.
Increases mortality by reducing hope, promoting self-destructive and risky behavior, and encouraging violence.
The malignant effects of income disparity reach both the wealthy and the poor, and they are magnified by 21st-century media, which remind us of that disparity 24/7.
Forty years ago, the highest-paid employees of S&P 500 companies earned an average of just 30 times the pay of a typical worker. But the figure has skyrocketed since then. According to economists, income inequality is at an all-time high. The top 1 percent of Americans now earn a quarter of all income in this country, and the top 10 percent earn 50 percent of income.
Income inequality is higher in the United States than in any other developed society in the world save Hong Kong, which has no minimum wage. Our income inequality is double that of most European societies.
A version of the proposal I'm making, called the Income Equity Act, is regularly introduced in Congress, but it never gets out of committee. It would deny tax deductions to corporations that pay their executives more than 25 times what they pay their lowest-paid employees.
Another version of the measure would link government contracts to corporate income distribution. More than three-fourths of the federal government's top contractors now pay their executives more than 100 times what they pay their average workers.
One might quibble with the 100-to-1 ratio that I've proposed. Go ahead and make it 200. Or 50. If we begin to debate the magnitude of wealth disparity that we can tolerate as a society, then we are moving in the right direction.
Under such a policy, corporate executives would have an incentive to do what they rarely do - think about the little guy. Every dollar-an-hour wage increase for the lowest-paid worker could bring a $200,000 bonus for the chief executive. The little guys, meanwhile, would be cheering on executives who lavish themselves with bonuses.