I want to try to make a subtle distinction here: between something that I'm glad is happening, on the one hand, and changes that fundamentally reshape economic power in the country, on the other hand. The first does not necessarily bring about the second. And it's important, I would argue, for us to keep our eye on the ball (okay, it's baseball playoff season--allow me the easy cliche).
To recap what most of us have read about, there are two moves now to cap or restrict CEO pay. We've got the so-called pay czar, Ken Feinberg, trying to restrict pay:
As expected, Treasury official Kenneth Feinberg said cash salaries paid to the highest-earning executives at seven companies getting exceptional federal aid will be capped at $500,000, while the group's total pay level, annualized, will be 50% lower than a year before.
And the Federal Reserve Board has stepped forward to try to provide a modicum of leadership:
The Federal Reserve announced Thursday that it would crack down on pay packages that encouraged bankers to take excessive risks, but officials acknowledged that the plan might not reduce the biggest paychecks on Wall Street.
While unlikely by itself to end the practice of lavish compensation, the Fed’s plan is one of the most far-reaching responses yet to last year’s financial crisis. It will subject executives, traders, deal makers and other employees of the biggest banks to regulatory scrutiny of their compensation and represent another increase in government intervention in the marketplace.
Let me start by saying I'm all for cutting the entirely obscene level of pay for people are vastly overpaid, many of whom are not competent to do their jobs and have paid no price for crashing our economy. I've detailed in the Audacity of Greed: Free Markets, Corporate Thieves and The Looting of America the absurd levels of pay some of these guys have been showered with.
But, I am all for it as long as we understand the limits, as long as we understand something much bigger must be done or else this is all a game.
First of all, we need to understand that pay is not where the vast riches accumulated by CEOs actually is hidden. The vast wealth is in the pensions they get--none of which is tied to performance or has much relationships to the CEO's pay. In the Audacity of Greed, I gave an example of the CEO of AT&T, Edward Whitacre:
In addition to a $158 million payout and as much as $106 million in performance-based shares of the company, Whitacre also received automobile benefits, estimated at $24,000 per year; access to AT&T’s corporate jet, at an estimated monthly cost of $20,000; home security ($6,500 annually); lifetime health and welfare benefits for him and his wife; and payment of taxes on all these benefits, at an estimated cost of $19,000 per year.
And if that retirement package—the third highest in U.S. corporate history—wasn’t enough, Whitecare was also slated to receive $1 million annually for the three years following his retirement for acting as a "consultant" to AT&T.
The question that popped into my head when I read about Whitacre’s retirement bounty was: Why should a man who has already earned millions of dollars in pay and benefits while he was working at a company receive millions of dollars more upon his retirement? As Paul Hodgson, senior research associate at the Corporate Library, an independent source for corporate governance and executive and director compensation information and analysis, pointed out about Whitacre, "They’ve been paying him salary, bonuses and long-term incentives for the 43 years he’s been there...What is his pension for? As far as I know, the pension is to give you some financial
security when you’re finished working. It’s not an incentive. I don’t even think it [the pension] should be there, to be honest. Not at that level.
None of this will change under the new rules put out by Feinberg and the Fed.
But, that isn't even, in my opinion, the biggest issue. We have not dealt with the fundamental problem that has led to the astonishing level of CEO greed: a lack of democracy and a lack of balance of power in the economy as a whole.
The CEOs of America have been able to walk off with great riches because there is no check on their power. They have been able to do so because in American, for three decades, we were sold an ideology that glorified the "free market" and, by extension, raised up the CEO to the status of king.
In that world, accepted in a bipartisan way by the political system, there was no need for democracy at work. And by democracy I think of at least two aspects that are not being dealt with in our current political debate.
First, we have a corrupt system of corporate governance, where the boards of companies are effectively run by private fiefs hand-picked and controlled by the CEO and, at best, a small group of his cronies. Yes, there is a valiant effort, being pushed by among others the AFL-CIO and Change To Win, to require "say on pay" provisions in corporate charters. I applaud those efforts. But, those provisions, and other shareholder activism, are often advisory.
There is no serious move in the policy world to force changes in the internal undemocratic workings of the corporate boardrooms. Indeed, the "pay czar" is a recognition that power is not changing for the long haul--his role exists solely because of the role taxpayers have had in bailing out the incompetent CEOs many of whom not only should not be getting reduced pay, they should be fired. I would argue here, then, that we are missing an opportunity to use our leverage, as taxpayers, to demand and force deeper, long-term changes in how corporations are run. The "pay czar" is window-dressing.
Which leads me to my final point, which is the most central one: the vast robbery that has taken place over the past 30 years has not been primarily one of CEO pay. CEO pay is a symptom that people are enraged about because in their own personal lives they are struggling to make ends meet. I regularly point out that over the past 30 years productivity has skyrocketed but wages have been flat. Yes, some of that is due to technology. But, the central reason for that gap is a lack of democracy at work.
By that I mean a lack of power on the part of workers to be able to gain a fair day's pay for a fair day's work.
My own view is that that only changes when we change the balance of power in the economy--and that will only happen when workers can truly have the right to organize a union. When we have a fair balance in the economy, then, we won't need a pay czar.
Which is why I believe we have just begun the debate and the discussion--and the real struggle for real change.