WHY SUBSIDIZE CEOs? By now, most Americans recognize—and resent—the fact that top corporations compensate their executives in ways that are simply indecent. Eye-popping salaries. Outlandish bonuses. Lavish stock options. Golden—nay, platinum—parachutes. What fewer realize about this obscene compensation is that we’re all paying for it. Literally.
A new blockbuster report by the Institute for Policy Studies exposes how taxpayers subsidize executive compensation and reveals some of the worst offenders. Those subsidies add up to more than $14 billion a year. That equals 12 percent of the planned savings from the deficit deal’s “sequester” in a span of five years, or 211,732 times the annual cost of hiring an elementary school teacher, or $46 for each American. As co-author Scott Klinger says, “Every man, woman and child in America is buying a CEO lunch.”
Equally disturbing: twenty-five companies paid their CEOs more in total compensation last year than they paid in taxes.
“No laws have been broken,” says Klinger of the numerous loopholes that IPS identifies, which include tax-deductible “performance-based” compensation. (Five companies alone gave out $232 million in such pay.) “And that in itself is very troubling, given the results.” Co-author Sarah Anderson says one goal of the report is to debunk the notion that the United States is broke. “We’re actually a very rich country, but so much of our wealth is being diverted into the pockets of top executives.”
Can the 99 percent take that wealth back? IPS sees cause for hope, citing the Occupy movement, which Anderson says “created new openness” to talk about inequality and corporate excess: “The moment majorities of people feel [loopholes] are no longer legitimate, that’s when you get the sense that real action and real change are possible.” IPS director John Cavanagh recalls how public outrage and political pressure led the IRS to crack down on corporate deductions for expenses like skyboxes and lavish lunches. More recently, Anderson notes, tighter tax treatment for specific industries was included in both Obamacare and the Dodd-Frank law.
Shareholders at fifty-five companies have already voted this year to reject proposed executive pay packages. Made possible by Dodd-Frank, the votes are advisory for now, but they show the breadth of discontent—and an increasing awareness that a CEO’s interests may not match those of his or her company, let alone the public’s. “We need to make these votes of shareholders binding,” says Klinger. Meanwhile, Representative Barbara Lee has proposed a bill to cap total deductible compensation at $500,000 or twenty-five times the pay of a company’s lowest-paid worker, whichever is greater. (Requiring companies to disclose their CEO-to-worker pay ratio is one of several executive pay rules included in Dodd-Frank that are currently stalled.)