Presidential Politics and CEO Pay

Politicians love to beat up on overpaid CEOs.


In the wake of the 2008 financial crash, Republican presidential candidate John McCain lashed out at executives of bailed-out banks, calling for their pay to be cut to the salary level of the President of the United States, $400,000 a year.

President Barack Obama has been even tougher, once telling CBS’s “60 Minutes” that he “did not run for office to be helping out a bunch of fat cat bankers on Wall Street.”

This election season, Donald Trump said huge CEO paychecks were a “joke” and a “disgrace” — the result of company boards stacked with cronies.

For her part, Hillary Clinton has said it “just doesn’t make sense” that big company CEOs make 300 times more than workers, especially when the gaps in other countries are so much narrower.

Clearly, the outrage over out-of-control CEO pay runs across the political spectrum. What else do these leading politicians have in common? A lack of effective solutions.

wall-street-ceo-pay-executive-excess

(Photo: Sergei Bachlakov / Shutterstock.com)

Since losing his presidential race, Sen. McCain hasn’t supported any tough CEO pay reforms. Trump, for all his bluster about the problem, hasn’t put forward any solutions either.

Obama did support several executive pay reforms that were included in the 2010 Dodd-Frank financial reform bill. Some of these have been implemented, including “say on pay,” which gives shareholders a vote on executive pay packages. But the impact is limited because the votes aren’t binding on corporate managers.

The Dodd-Frank law also includes an important new rule that’ll require companies to report the ratio between CEO and median worker pay, starting in 2018. But the Obama administration hasn’t supported proposals to put real teeth in this reform by linking it to tax and procurement policies.

If companies with low pay gaps were rewarded with lower tax rates or preferential treatment in government contracting, we’d see some real change.

And one of the most important Dodd-Frank provisions, a ban on Wall Street bonuses that encourage inappropriate risk, still hasn’t been implemented. In fact, thanks to a perverse loophole in the tax code, taxpayers are actually subsidizing these bonuses.

The creator of this loophole is another presidential candidate who talked tough about CEO pay on the campaign trail: Bill Clinton.

In 1993, he pushed Congress to cap the deductibility of pay at $1 million. Companies could still pay their CEOs as much as they liked, but anything above $1 million wouldn’t be deductible. It was a good plan — until Clinton agreed to insert a huge loophole for so-called “performance-based” pay.

This meant that the more companies doled out in stock options and other bonuses, the less they paid in taxes. The loophole applies to all companies, but it’s been particularly problematic in the financial industry.

report I co-authored for the Institute for Policy Studies found that the top 20 U.S. banks paid out more than $2 billion in fully deductible performance bonuses to their top five executives over the past four years. This translates into a taxpayer subsidy of $1.7 million, per executive, per year.

Beyond the lost revenue, this loophole also perpetuates the reckless Wall Street bonus culture that caused the financial crash in the first place.

If elected president, Hillary Clinton would have an opportunity to correct her husband’s policy mistake. So far, though, she’s only said she wants to “reform” this loophole, without explicitly calling for its closure.

If our leaders want to be taken seriously when they rant about runaway CEO pay, they need to embrace solutions that’ll have a real impact — rather than just spewing rhetoric to score populist political points.

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