House Republicans, with help from some Wall Street-friendly Democrats, are rushing to repeal the most promising Dodd-Frank Act check on excessive executive pay. You won’t believe their rationale.
Only 10 percent of Americans now have confidence in Congress, Gallup has just informed us. No other major institution in American life today has this low an approval rating. In fact, adds Gallup, no major American institution has ever had an approval rating this low.
The most amazing aspect of all this? Public confidence in Congress would likely be running even lower if average Americans knew more, day to day, about what Congress is actually doing. The latest case in point: last week’s congressional committee action on H.R. 1135, the “Burdensome Data Collection Relief Act.”
This particular piece of legislation speaks to an ongoing frustration in America’s body politic: the supersized paychecks that go to America’s top corporate executives. Average Americans, in overwhelming numbers, want something done to bring some common sense back to CEO pay.
But the House Financial Services Committee, this past Wednesday, opted to do the exact reverse. By a 36-21 margin, committee members voted to repeal the only statutory provision now on the books that puts real heat on overpaid CEOs. The full House, observers expect, will shortly endorse this repeal.
The specific provision 31 Republicans and five Democrats voted to repeal — section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act — imposes a new disclosure mandate on America’s major corporations. Under Dodd-Frank, corporations must annually reveal the ratio between what they pay their CEO and what they pay their median — most typical — workers.
Corporations have had to disclose what they pay their CEOs ever since the Great Depression. But they’ve never had to disclose, until Dodd-Frank became law in 2010, their CEO pay as a multiple of what their average workers are earning.
Executive pay reformers consider this ratio information crucial to the struggle against executive excess. If Americans could see — and compare — the exact CEO-worker pay ratio from one corporation to another, the resulting negative publicity on those corporations with the widest pay gaps might help discourage excessive executive compensation in the future.
And if corporations should choose to ignore this negative publicity — and charge ahead with lavish executive compensation — the pay ratio disclosure Dodd-Frank mandate could serve as a stepping stone to tougher reform action.
Lawmakers could, for instance, set a specific CEO-worker pay multiple as the nation’s preferred corporate compensation standard and deny government contracts, tax breaks, and subsidies to any corporations that pay their execs over and above that standard.
The Dodd-Frank pay ratio disclosure mandate has the potential, in other words, to help extinguish what Forbes magazine recently dubbed “the out of control wildfire” that executive pay has become. But the mandate hasn’t extinguished anything yet because the mandate hasn’t yet gone into effect.
Corporate lobbyists have seen to that. They’ve been pressuring the Securities and Exchange Commission, the top federal watchdog over Corporate America, to gut the Dodd-Frank pay ratio provision.
This lobbying blitz has paid off. The SEC has to issue regulations before any newly legislated mandate over corporate behavior can be enforced. The agency has so far issued no regulations on CEO-worker pay disclosure — and nearly three years have gone by since Dodd-Frank initially worked its way into law.
But America’s corporate leaders don’t want to have to rely solely on their ability to intimidate the SEC. They’ve also orchestrated a congressional drive to simply repeal the Dodd-Frank pay disclosure mandate outright.
How can lawmakers who carry Corporate America’s water possibly defend repealing a measure as publicly popular as pay ratio disclosure? Easy. They simply paint corporations as the victims of overzealous government bureaucrats who want to drown them in burdensome — and meaningless — paperwork.
In last week’s committee deliberations over 953(b), repealers did their best to trivialize the intent of the Dodd-Frank pay ratio mandate.
Today, joked House Financial Services chair Jeb Hensarling from Texas, CEO-worker pay disclosure, tomorrow a mandate that companies calculate the ratio of office supplies they get from national big box retailers to the goods they get from locals — or the ratio of healthy to unhealthy drinks in company soda machines.
“I assume,” Hensarling smirked, “there is an infinite number of ratios some investors would find helpful to their decisions.”
Serious business analysts, of course, see executive-worker pay ratios as anything but trivial. Peter Drucker, the father of modern management science, believed that any corporations that had executives making over 20 or 25 times worker pay were putting employee morale and productivity at risk.
The current director of the Drucker Institute at the Claremont Graduate University just outside Los Angeles, Rick Wartzman, has stressed that point repeatedly, both in the nation’s business press and in comments backing pay-ratio disclosure filed with the Securities and Exchange Commission.
The lawmakers backing the repeal of the current Dodd-Frank disclosure mandate don’t yet have a Senate majority. But repeal could still slip through Congress, most likely via some future House-Senate conference “compromise” on “reforming” the original Dodd-Frank legislation.
So what can we learn from the sad, still-unfolding tale of Dodd-Frank’s section 953(b), a piece of legislation duly enacted into law, then ignored and never enforced, and now in jeopardy of getting repealed into oblivion?
Maybe this. In a democracy, elected leaders represent the people. In a plutocracy, elected leaders represent the people — and listen to the rich. America today, tells the 953(b) tale, matches up with the latter definition.
Labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book, “The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970,” has just been published.