The State of Runaway CEO Pay Resistance

roberthuffstutter/flickr

(Photo: roberthuffstutter/Flickr)

Fed up with the do-nothing Congress, people around the country are no longer waiting for Washington to lead on some of the most pressing economic fairness issues of our time.

Take the minimum wage debate. States and cities are rising above the partisan swamp in the nation’s capital to combat wage stagnation. In the 2014 session, 10 state legislatures and the District of Columbia passed minimum wage increases. Similarly, state and local efforts to rein in CEO pay are proliferating.

It’s not as though Washington officials don’t talk a good line on this issue. Particularly in the wake of the 2008 financial crisis, members of both parties made countless speeches about the need to crack down on reckless CEOs who take risks that could spur short-term profits while causing long-term troubles.

And the Dodd-Frank financial reforms Congress approved in 2010 do contain several modest provisions on executive compensation. One of the most innovative requires companies to report the gap between their CEO and worker pay. Another would prohibit Wall Street pay practices that encourage excessive risk.

But in the four years since President Barack Obama signed this law, regulators have dragged their feet on implementing these and several other Dodd-Frank executive compensation reforms. In this leadership vacuum, state and local activists and lawmakers are stepping up.

The Rhode Island state Senate passed a bill in June that would use the power of the public purse to encourage more equitable pay practices. The measure, not yet introduced in the Rhode Island House, would give companies with narrow CEO-worker pay gaps an edge in competing for state contracts. Governments already deny contracts to firms that cause racial or gender inequality through discrimination. Why should our tax dollars subsidize economic inequality?

The California state Senate recently came close to passing a bold CEO pay law. This one would tie the corporate tax rate to a firm’s CEO-worker pay gap — the wider the gap, the higher its rate. A majority of senators voted in favor of the bill, but a two-thirds majority was required for passage. And now lawmakers are considering it again.

In two states, unions garnered huge support behind ballot initiatives on CEO pay. The Massachusetts Nurses Association got more than 100,000 signatures on a petition to penalize hospitals that pay their CEO more than 100 times what they pay their lowest-paid worker.

In California, the Service Employees International Union (SEIU) proposed a salary cap for nonprofit hospital executives of $450,000 a year. In both cases, the unions have withdrawn the ballot questions after popular support for the CEO pay initiatives helped them win concessions on other labor-related demands.

This level of beyond-the-Beltway action on CEO pay is unprecedented. It’s a sign of the growing outrage over a system that adds two, three and even four more digits to the paychecks of those in the corner office than to those of other hard-working people.

And it proves that growing numbers of Americans aren’t willing to let Washington gridlock stand in the way of sensible reforms to end extreme inequality.

Sarah Anderson directs the Global Economy project.