Why do corporations pay their executives so handsomely even when paying workers would be much more cost effective? Two words: corporate greed. Companies like to claim they pay executives generously because marketplace competition leaves no choice: To attract top executive “talent,” companies have to pay top rates. But the facts don’t bear that out.
According to the Journal’s May CEO pay report, six of the 25 highest-paid top executives in 2021 failed to exhibit much magical “talent.” The companies they managed saw decreases in shareholder returns.
The right of a business to deduct its “ordinary and necessary” business expenses has, of course, long been a bedrock assumption of our tax code. The non-deductibility of exorbitant executive pay reflects the determination of a Republican Congress that pay in excess of $1,000,000 by large corporations should not be considered an “ordinary and necessary” business expense.
But what we see with excessive CEO pay doesn’t at all reflect judgments about “ordinary and necessary” business expenses. Excessive executive pay, in the end, boils down to ultra-wealthy corporate board members doing favors for their ultra-wealthy executive peers. Board members will continue to shamelessly shell out for their own even when that excessive pay ends up slapping their firms with tax bills in the billions, even when execs don’t do a decent job,
Corporations should end this shameful cycle of never-ending CEO pay hikes and instead invest that money back in their workforce. In no world real or imagined can a CEO be “worth” a thousand times more to their firms than a typical employee. Pay scales should reflect that.
Paying workers more might hurt company bottom lines in the short term, but fair pay — in the long term — will always pay off. Better-paid employees stay on the job longer, feel more committed to their companies’ success, and work more productively — and have more money to buy their companies’ products. And, as the Journal data show, companies that pay worker more and execs less will have smaller tax bills.
If the folks running America’s S&P 500 corporations really had their focus on efficiency, their decisions would reflect that it pays — literally — to pay workers more. But the folks today running our corporations don’t seem to be in any hurry to limit their own pay.
The fix for this problem? Congress could pass the proposed Tax Excessive CEO Pay Act and condition the tax treatment of executive pay on the ratio of that pay to worker pay. Instead of merely setting the deduction for CEO pay at an arbitrary dollar amount like $1 million, lawmakers could instead make a corporation’s tax rate dependent on the ratio of executive pay to worker pay. Taking that step would align the pay incentives of corporate executives with better pay for all workers, leaving both workers and the companies that pay them much better off in the long run.
Read More: Corporate America Suddenly OK with Paying Taxes… – Inequality.org