Another View: Strengthening the “say-on-pay” vote to rein in executive pay

The culture wars continue to polarize American politics, but Americans on both sides of the cultural divide should agree that the growing gap between the wealthiest and average Americans is undermining democracy. The average CEO pay at the nation’s largest companies hit $20 million this year, up 31% since 2020. That’s 275 to 350 times the salary of median workers.

The shareholder vote is a brake on this type of dangerous inflation, and making this vote binding would reinforce it.

Since 2011, public companies have been required to hold a non-binding shareholder vote on executive compensation. It’s not exactly democracy – the dominant shareholders are usually also the super-rich – but it does give someone outside the ruling suite a chance to oppose it. Unfortunately, only about 3% of votes result in complaints.

Several European countries have made such votes binding on corporate boards. This is no panacea for executive salary inflation, but the United States should follow suit.

Salary figures at Pittsburgh-based companies follow the national trend. Data compiled by the Post-Gazette in the Fortunate 50 shows that the 50 highest-paid executives at local businesses earned, in total, nearly $500 million last year. This represents approximately 80% of the annual tax revenue of the entire city of Pittsburgh.

Americans often assume that there is no other way to organize the economy than what they see – that exorbitant executive salaries, however unseemly, are a reality in a capitalist society. . This is what the powerful want ordinary people to believe, but it is not.

In 1965, for example, the average CEO earned about 21 times the salary of an average employee at their company, reports a 2021 study by the Economic Policy Institute (EPI). It’s a healthy ratio that can actually reflect a leader’s true value to their company. A 300 to 1 ratio, however, is simply an exercise in raw power over logic.

The late 1980s brought a sea change in the way corporate America thought about compensation and justice. The ratio went up to 61 to 1. And it’s only gone up since.

Consider these extraordinary numbers from the same EPI report: Between 1978 and 2021, the average CEO salary at top companies increased by 1,322%. The S&P 500 index rose 817%. And average workers saw their wages increase by 18%.

You don’t have to be a socialist to see that something is wrong here, and you don’t have to be a socialist to worry about it. In fact, ardent capitalists should worry most about gross injustice that erodes faith in the American economic and political system.

To preserve this system, the federal government should strengthen the power of shareholders to veto executive compensation programs.