Cross-posted from Campaign For America's Future
Two little-known rules on corporate reporting of executive pay are currently being reviewed by the Securities and Exchange Commission. While they have received almost no press coverage, these rules could have far-reaching consequences for our nation's economy and the future of the middle class.
The Dodd-Frank financial reform law requires corporations to disclose the difference between the pay received by their CEO and the median income of all other employees, and the SEC is currently finalizing the regulations that will determine how this reporting is to be done. It has also announced that it will release rules by the end of the year requiring corporations to report on the relationship between senior executive compensation and corporate performance.
While these rules may sound obscure and largely symbolic, here are five reasons they should be receiving wider attention -- followed by five ways this kind of information can be used to improve economic policy:
1. Inequality is reaching crisis levels in our country.
The Census Bureau reports that income inequality between the richest and poorest Americans has reached historic levels. The chief economist at J.P. Morgan Chase reports that "U.S. labor compensation is now at a 50-year low relative to both company sales and U.S. GDP."
More than 46 million Americans live below the poverty line. Millions of Americans who work full-time for highly profitable corporations are nevertheless being forced onto government anti-poverty programs in order to make ends meet.
Income inequality is the highest it's been since 1928. Wages have fallen for most Americans in real terms over a period of decades, while income has skyrocketed for the top 1 percent, risen even more the top 0.1 percent, and exploded even more for the top 0.01 percent.
No wonder Thomas Piketty's book on wealth inequality was a bestseller.
CEO pay, along with that of other senior executives, is a major contributor to this inequality. We need to know more about this phenomenon: Which companies are overpaying their CEOs? How are they performing in the marketplace? How responsibly are those companies being managed?
2. Productivity gains are going to the top, threatening the middle class way of life.
In the 30 years after World War II -- the period of our greatest modern growth and prosperity -- wages grew in line with productivity increases. Then that changed, as corporate governance practices and an increasingly conservative political climate led to a severance between output and the earnings of corporate employees.
Executive compensation plays a large role in this rupture between what people earn and the rate at which the overall economy is becoming more productive.
3. Contrary to conservative mythology, CEOs are not "getting paid what they deserve."
There is a right-wing myth that says that CEOs are giants who walk among us. If they receive enormous sums in compensation, says the myth, it's because they are "job creators" who drive the economy for the rest of us.
This is nonsense, born of the addled fictional works of Ayn Rand and her ilk. Sure, there have been CEOs who change the world with their brilliance and drive. But nowadays there is very little relationship between CEO accomplishment and CEO pay. Studies have suggested, in fact, that there may be no relationship between them at all.