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In Wake of Crash, McCain Talks Tough About CEO Pay -- Will Congress Call His Bluff?

The candidate is proposing a radical restriction on pay for CEOs of bailed-out firms.  But is he serious or is this just election season populism?
 
 
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John McCain, reborn on the campaign trail as an anti-corporate-greed populist, now wants to cap executive pay. No CEO at any business bailed out by our tax dollars, the GOP Presidential nominee is declaring, "should receive any more than the highest-paid person in the federal government."

That high-paid federal employee just happens to be the President of the United States. The President's annual compensation: $400,000, or about 24 times the current take-home of the lowest-paid federal employee.

How radical a step is McCain proposing here? An enormously radical step, at least by Corporate America's existing executive pay standards. Last year, says a new Institute for Policy Studies report, top CEOs in the United States pocketed 344 times more pay than average American workers.

On the other hand, by historical standards, McCain's cap amounts to nothing radical at all. Back in the early 1980s, at the beginnings of America's executive pay explosion, top CEOs took home just 30 to 40 times what their workers were making.

And some people considered that 30 to 40 times way too large a divide. Among the critics: Peter Drucker, the founder of modern management science and the preeminent business thinker of the 20th century. Drucker, as a recent Business Week commentary reminds us, felt that any top-to-bottom pay gap wider than 25-to-1 undermines the teamwork that modern enterprises needs to operate effectively.

Drucker, who died three years ago, never changed his mind about that, and, in the current debate over the bailout, a variety of activists from the progressive side of the political spectrum are keeping his spirit alive. They're calling on lawmakers to deny bailout dollars to any company where the top executive is making over 25 times what the company's lowest-paid worker is making.

John McCain, with his call to link pay for bailed-out executives to the top federal paycheck, is essentially calling for the same thing. His proposal would apply to all the firms that want in on the $700 billion of bailout dollars. That's every big financial institution in the country. And getting a solid executive pay cap in this bailout would set an important precedent that progressives can then fight to have extended to government procurement in general.

Does Senator McCain actually mean it? Is he really serious about reversing Corporate America's generation-long compensation tilt to the top? Or is the Arizona senator just blowing campaign smoke?

Democrats in Congress can easily find out. They can plug into the Senate bailout bill a clause that spells out McCain's CEO pay cap proposal. Let's see if the senator votes for it. If he doesn't, his "populism" would stand revealed as a campaign fraud.

More importantly, if McCain does vote for a serious bailout cap on executive paychecks -- and if enough Democrats join him -- we will have taken a giant step to common sense in corporate compensation. We will be putting the kibosh on the excessive executive pay rewards that have given our nation's CEOs the incentive to behave so recklessly.

So what are Democrats in Congress waiting for? Stand up against greed. Put a real CEO pay cap in the bailout bill. Help make our economy work again. Call John McCain's bluff.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. Sam Pizzigati, an Institute associate fellow, edits Too Much, an online weekly on excess and inequality.  They are co-authors of the recently released report Executive Excess 2008:  How Average Taxpayers Subsidize Runaway Pay .

 
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