Pres Obama, "Save the Middle Class;" Sen McCain, "put an end to greed": How About a Maximum Wage Limit?

Forty years ago, a highly destructive trend began in American life.  This was the unmerited skyrocketing growth in top corporate executive salaries relative to pay of low level workers.  Since 2008 it has become starkly evident how harmful this has been to the well-being of America and destructive to the middle class.  The same pattern occurred just before the "Great Depression" of the 1930s.  While President Obama recognizes that we must save the middle class, and John McCain in 2008 was actually highlighting the greed on Wall Street, few non violent "revolutionary" ways to save us all and particularly the middle class from this greed have gained wide traction.  Moreover, how many of our leaders have given intensive thought to the corrosive effects on the hopes of the poor that failure of the middle class could engender?  The poor must be helped with education, jobs and homes, and the middle class saved.

With all the recent talk about raising the minimum wage, now is the time to think about and also take action on the concept of the maximum wage limit.  What has happened in the past 40 years is unsustainable.  The French economist Thomas Piketty has just had his major work on Capital issued in English translation.  It covers the past 250 years of capital formation.  He examines the dangers we face as our income inequality parallels extremes not seen since the "guilded age."  It has received tremendous public attention for a field not noted for general popularity.

Some of my fellow DC Statehood Green Party members have complained that I don't seem to care enough about the poor.  This is entirely false.  During 4 years I met weekly for 3 hours with other DC street vendors trying to save the vending industry from Corporate DC and DCRA.  I saw vending as one important way for the poor to begin to work for self-sufficiency.  You didn't even have a box to check if you were a returned citizen.  Today we have fewer than 1,500.  Some years ago there were 7,000.  Thanks DCRA and big business.

 The city has systematically corporatized independent entrepreneurship with the Basic Business License, made it impossible to get one if the City says you owe $100 or more, and also made it much harder to become a resident independent taxi driver.  We managed to save about 1/2 the vendors, mostly the more economically solvent ones.  The saddest thing I saw was an elderly black man who would wheel out a chair and his shoe shine box to make a few dollars (probably no more than $30 or $40 a day) on Connecticut Ave.  DCRA made sure he and those like him lost the possibility to have a single chair operation.

A recent blow for corporate sanity has been struck by Sony Corp.  Even though it was more about economics, it is a good first step.  About 40 top executives will return bonuses totaling close to ten million dollars to help fight business losses.  This link also has a number of interesting comments.  Hopefully other major corporations will do something similar.  Only superior contributions should merit bonuses.

On November 24, 2013, the Swiss voted on something called the 1:12 Initiative, which was basically a Maximum Wage Law saying that big company CEO's should be paid no more than 12 times the wages of their low level workers.  It won the support of over 35% of Swiss voters.  While it didn't win, it has helped accelerate the discussion on maximum wages. Supporters of the measure felt that extreme ratios enable the super rich to wield undo influence over society, economics and politics, thus threatening democracy.  In the US that influence has been increased by anti people Supreme Court decisions, like Citizens United.

Last year the Swiss ratio was not 12 to 1, it was more like 148:1 according to the AFL.  They also said that the US ratio was 354 to 1, although other suggest only 273:1.  Bloomberg reported that JC Penney (a company which elsewhere has been reported to be in economic trouble) has a CEO:low worker ratio of 1,795 to 1 ($53.3 million to $30,000 typical wage).  Is this one reason JC Penney has problems?  The Economic Policy Institute reports that between 1978 and 2012, CEO's were up 875%, but workers were up only 5.4% adjusted for inflation.  In California, a tax increase is being considered for those corporations where the top to bottom pay differences are excessive.  Here is the link for a Google page with a number of articles covering this idea.

What would be an ideal ratio in this country is certainly up for discussion. Peter Drucker in 1965 felt that 20:1 was a good ratio.  Recently several have suggested 100 to 1.  A refinement has been 100:1, tied to the Minimum Wage which tends to be lower than the typical lowest level wage in a major corporation.  If CEO's wanted a wage increase, they would then have to increase their bottom level corporate wages, or even lobby for raising the minimum wage.

I began thinking seriously about this issue around 2004 when I encountered the 40:1 ratio figure of 30 years earlier.  I thought that with the increased efficiencies of modern phone and computer communication that holding to no more than a 50 to 1 ratio would stop the massive increases of the last decade in check.  Here then are some of the resulting ideas.

50 to 1 AND NO MORE!!  
Should be our war cry and a focus for group action

Wall St. has the most overpaid CEOs of the entire world's capitalist sector. Of course it makes sense that people who are obsessed with money will want the most of it. Since 2007/8 there had been some reductions in the obscene salaries paid to CEOs and upper management, but they are creeping up again. Around 1980 top CEO's earned about 40 times the salary of their low level workers. By 2007-8 this had skyrocketed to a range from 400 to 1,000 to one. In 2012 the CEO of Ford Motors was getting $58 million while the unions were negotiating for something between $50,000 and $58,000. This is a 1000 to 1 ratio, STILL??

So my motto is – THE 99% UNITE -- 50 TO 1 AND NO MORE!!

From 2007 to 2008 Goldman Sachs' CEO salary jumped from $37 million to $74 million. Spring of 2008, after discovering that the top 3 GS executives all had salaries above $65 million, 43% of stockholders approved a proposal for a Stockholders Advisory on Executive Compensation. While not a win, this was enough to scare the 2009 CEO salary down to a dainty $26 million.

So my motto is -- STOCKHOLDERS UNITE -- 50 TO 1 AND NO MORE!!

This chart from Forbes can show annual details by clicking your mouse over a single year chart column.  You cannot do that here but must click "This chart" to use the original Forbes chart.

In 2010 and 2011, the average CEO compensation for the Fortune 500 has ranged from $10 to $13 million. If the workers get $50,000 a year this is over a 200 to 1 ratio. If the lowest level workers (such as in businesses like Wal-Mart and McDonalds) only earn $20,000, then the CEOs are still averaging more than 500 to 1.  A recent progressive's victory in Seattle, around the $15 minimum wage has created considerable excitement there.  The 1% are now rallying to suppress this surprise victory.

So my motto is -- WORKERS UNITE – 50 TO 1 AND NO MORE!!

Some related thoughts: Since most annual stockholder meetings are held in the spring, people in the Occupy movement, successor organizations, and other progressives should determine date and time of meetings for major corporations and occupy the sidewalks around their meeting sites. This was done in spring 2013 at the Bank of America meeting.  Other thinkers are now raising the possibility of a maximum wage limit, while also providing a scathing analysis of the corporate compensation decision process.

Also, there are often small dissident stockholder groups which can be contacted to further enhance efforts to modify excessive upper management pay with proposals for a Stockholder Advisory of Executive Compensation. This can be tracked by buying even ONE share of a major company's stock and reading the annual Proxy information.  This will include any new Proposals by groups of stockholders.  You can even form your own group to propose changes in the company.

I visited and spoke briefly to around 150 members of the Occupy group at Freedom Plaza, DC the fall of 2011. I asked how many people actually had stock. A few raised their hands. I asked how many were in a college or university. A few more raised their hands. I then asked how many belonged to a union with a pension fund. Also some hands were raised. I then asked everyone who had raised their hand to do it again and about 1/4^th of the group did so. I pointed out that institutions of higher learning and unions invest many $millions in stock. I then urged them to find means to encourage their companies, schools, or unions to use their votes and proxies to support efforts to lower excessive upper management pay.

When top CEOs are overpaid, wage inflation also permeates the ranks of upper-level management, and affects stockholder profits and dividends.  Since more than 1/2 of Americans are invested in business through stocks, bonds, mutual funds, and pension plans, this is a very big issue for us all. However, it is also a great opportunity for us to apply leverage to corporate greed.  Since very high CEO pay in drug and health care companies also exists, this raises the cost of health care and job-sponsored health insurance, giving management another reason to move jobs overseas.

Illustrating extreme Greed Capitalism was the pay of major finance organization CEOs of Countrywide Financial and Lehman Brothers.  The 2007 Countrywide CEO salary was $142 million, in 2008 there was a modest drop to $102 million.  On the other hand, Lehman's CEO actually raised his salary from $52 million to $72 million. Then the 2008 housing bubble crash led to these companies' well-deserved extinctions.  Although Goldman Sachs' CEO salary rose from $37 million to $74 million in the same period the company survived for some reason.*

I believe that one motive for outsourcing work to cheap foreign labor countries is that it enables CEOs to overpay themselves while retaining enough profits to keep the stockholders from complaining. Lower the pay enough because of stockholder action and they will no longer have the incentive to move overseas. A look at the Forbes CEO Compensation sites for the past few years shows there had been a downward trend in CEO pay from 2008 onward, which is now moving up again. Unfortunately, while previously it was possible to examine pay figures by industrial sector, Forbes in 2010 removed this capability, and in 2011 made comparing these figures even more difficult. I doubt this was done accidentally.  This has made it a lot harder to compare CEO salaries by industry.

Another means of applying pressure is to see which companies pay their CEOs more, and patronize those who pay less. The CEO of CVS was paid $15 million for 2012,  the CEO of Rite-Aid was paid $1.32 million.  I patronize Rite-Aid.   The entire health related industry is studded with highly paid CEOs.

Perhaps Obamacare will help reduce this (probably an important reason Republicans are fighting to destroy it).  An example: for 2012 the CEO of McKesson (which helps health care providers improve their business health and care delivery, and is a pharmaceutical distributor and health care information technology company) was paid $131 million salary.  His 5 year total was $285 million.  The CEO of Gilead Science (which as a biotechnology company discovers, develops and markets therapeutics) earned $43 million, and over 5 years $214 million.  No wonder health care costs have risen far faster than the inflation rate.  Forbes link.  

* Could it be that GS had special influence, especially in the Bush White House?

Lee Aikin, Nov. 2011 to Dec, 2013