Harold Meyerson describes a proposed California law:
The bill now moving through the California Senate doesn’t compel CEOs and their corporate boards to either raise their employees’ wages or cut their own. It merely presents them with a choice. Those who overpay themselves and underpay their employees can continue to do so but thereby subject their company to higher taxes. Or they can diminish the discrepancy in compensation and thereby lower their company’s taxes.
The proposed legislation wouldn’t exactly plunge CEOs into poverty. It would reduce, on a sliding scale, California’s corporate taxes — currently set at 8.84 percent of net income — for any company paying its chief executive less than 100 times the pay of its median worker, and raise them, also on a sliding scale, for any company paying its CEO more. (Under the terms of the Dodd-Frank financial reform act, the Securities and Exchange Commission is required to publish the CEO-median worker pay ratio for every publicly listed company. The SEC is expected to begin this practice this year.)
Other than some technicalities I don’t know that I have an objection to California’s proposed law. I doubt it will do much. As is the case with current law it would only apply to income generated within California so it’s possible that some companies might stop doing business in California.
That might not even be necessary. Just to take one example, Apple (headquartered in Cupertino) wouldn’t even need to close its many California stores. It could just sell them to franchisees and sell its products to the distributors (or the franchisees themselves) in any state that doesn’t have such a tax.
Companies that couldn’t engage in such a subterfuge but that are cash-rich enough could buy back their stock and become private.
I also note that the Dodds-Frank provision doesn’t require the companies to include wholly-owned subsidiaries in their calculations. That would suggest another strategy: offshore more of your workforce which I presume would be thought of as an unintended adverse secondary effect.
I think the real issues at stake here are poor corporate governance and the slack labor market created by globalization. When executive compensation becomes unmoored from company performance (my impression is that’s a factor mostly but not exclusively in the financial sector), it means that the companies’ boards for whatever reason are not doing their jobs. And when a worker’s competition isn’t the guy who lives next door but somebody who lives in India it would be expected that would put downward pressure on wages.
The interesting thing is that it hasn’t put downward pressure on executive pay. I would think that large companies could hire a highly-experienced Indian CEO who’d be willing to work for a fraction of what his U. S. equivalent would. For some reason that never seems to happen.
I’d be interested in hearing others’ reactions to the proposed law.