How much money, if any, is “too much” for a CEO to earn relative to their average employee?
In 1965, the average CEO made 20 times as much as their average worker. In 1989, that had nearly tripled, to 58x. By 2018, it had more than quadrupled to 278x.
Many believe this is fundamentally unfair, given the level of financial difficulty and poverty that some Americans face. For example, Bill Gates is rich enough to give everybody on earth $10 and still have $30 billion left.
What the legislation does
The Tax Excessive CEO Pay Act would institute an escalating tax on any corporation which earns at least $100 million in a year and whose chief executive earns more than 50x their median employee.
Those tax rates would range from 0.5% to 5% depending on how high the CEO pay is.
The House version was introduced on November 13 as bill number H.R. 5066, by Rep. Barbara Lee (D-CA13). The Senate version was introduced the same day as bill number S. 2849, by Sen. Bernie Sanders (I-VT).
What supporters say
Supporters argue the legislation would help tamp down on the growing levels of American income inequality.
“It is unjust and unacceptable that the CEOs of major corporations are making an average of 287 times more than their average worker — with some CEOs making upwards of 1,000 times more,” Rep. Lee said in a press release. The bill “will incentivize companies to reduce the CEO-worker pay gaps and pay their workers the wages they deserve. Because if companies can afford to pay their CEOs tens of millions of dollars, they can afford to raise wages for their employees.”
“The last time I checked, corporations got by just fine when CEOs made a million bucks a year — one-tenth of what they make now,” Sen. Sanders said in a press release. “All around the world today, large, successful businesses manage to be profitable while treating their workers with dignity and not handing out obscene pay packages to their CEOs. If America’s corporate boards can’t understand the absurdity of paying their CEO friends — in one year — more than their workers will earn in a lifetime, then the Tax Excessive CEO Pay Act will help them figure it out.”
What opponents say
Opponents counter that chief executives are actually paid about fairly — and arguably in some cases even underpaid — relative to their value to a corporation.
“Look at the impact that a CEO has on share value. By that measure, CEOs have indeed become vastly more important over the past half-century,” _Washington Examiner _columnist Dan Hannan wrote. “When Burberry’s chief executive, Angela Ahrendts, announced her departure, it wiped $700 million off Burberry’s value. Conversely, when the unfortunate Steve Ballmer resigned from Microsoft, the firm’s value jumped by $25 billion.”
“CEOs’ pay packages, vast as they are compared to yours and mine, are tiny when set next to figures like these,” Hannan continued. “When a company is dealing with colossal sums, the difference between a moderately competent CEO and brilliant one is worth billions. The same is not true of drivers, cleaners, receptionists — or newspaper columnists. That, in a nutshell, is what dictates salaries.”
Odds of passage
The House version has attracted 18 Democratic cosponsors. It awaits a potential vote in the House Ways and Means Committee.
The Senate version has attracted one Democratic cosponsor, Sanders’ fellow presidential candidate Sen. Elizabeth Warren (D-MA). It awaits a potential vote in the Senate Finance Committee. Passage is extremely unlikely in the Republican-controlled chamber.