BY SARAH ANDERSON AND PORTER MCCONNELL
Originally published in The Hill
Ten years ago, the economy crashed, due to Wall Street and the big banks’ short-sighted and reckless behavior. Thanks to the efforts of tireless advocates, the Dodd–Frank Wall Street Reform and Consumer Protection Act helped piece the economy back together. Miraculously, a provision from Dodd-Frank that requires corporations to disclose the ratio between the salaries of their CEOs and employees has survived attacks from Wall Street and Congress. And now, the first disclosures are finally out, with results that ought to outrage the American public and their elected officials.
The Institute of Policy Studies and Public Citizen compiled CEO-employee pay ratios for the nation’s biggest banks. Both Citigroup CEO Michael Corbat and JPMorgan Chase CEO Jamie Dimon make more in one day than their bank’s typical employee earns in a year. CEO Brian Moynihan earned 250 times the salary of the median Bank of America employee. Scandal-ridden Wells Fargo’s CEO Tim Sloan earned a whopping 291 times the median Wells worker. For the top six U.S. banks, the average pay ratio between CEOs and median paid employees came out to 272 to 1.
Why should we begrudge CEOs their soaring pay packages? Because, ultimately, they are coming out of our pockets.
First, the CEOs profit from us as customers — and not always honestly. Second, we subsidize their executives’ salaries with our tax dollars because bonuses are tax-deductible. And third, compensation in the form of stock-based pay encourages CEOs to take excessive risks to boost share prices, risking a financial crisis and taxpayer bailout.
The big banks are profiting handsomely from customers in fees for basic checking, overdrafts, even to see a teller. Both Bank of America and Morgan Stanley reported record earnings in the first quarter of this year. JPMorgan brought in a whopping $8.7 billion net income in the first quarter alone. Wells Fargo brought in a hefty $5.9 billion from January to March (before pending fines).
In the midst of these record profits, taxpayers are subsidizing Wall Street executive pay. Big banks received $3.6 billion in tax cuts in the first quarter since the Trump tax plan. The tax plan failed to close a loophole that allows corporations to deduct unlimited amounts of executive compensation from their taxable income — as long as the pay is “performance-based.” It did cap at $1 million the amount corporations could deduct for the “performance” pay of a company’s CEO, CFO and the three other highest paid employees. But pay above $1 million for other employees, including many high-paid Wall Street traders, remains fully deductible.
When large corporations and banks are allowed to deduct executive bonuses from their tax bills, small businesses, working families and the rest of us have to pick up the tab.
Performance bonuses also encourage risky and abusive behavior that threatens the country’s economic stability. Executive compensation experts have found that pay arrangements relying heavily on stock options and other “performance pay” encourages managers to focus on boosting share prices in the short term at the expense of long-term company value. This drive for immediate profit led Wall Street banks to make huge financial gambles, contributing to the massive crisis in 2008.
Wells Fargo recently announced $22.6 billion in stock buybacks, a legal form of stock manipulation that boosts executive paychecks. Meanwhile, the bank is continuing to deal with over a dozen consumer abuse scandals. Just recently, the news broke that the bank is facing a $1 billion fine for making customers pay illegal fees on mortgages and for fraudulent sales of auto insurance. CEO Tim Sloan told investors in a recent quarterly earnings call that more problems could come to light at Wells Fargo. This did not stop the company from giving him a $4.6 million raise.
The good news is that excessive CEO pay and the perverse incentives that accompany it are not inevitable. One proposal pending in the Senate and House would eliminate the performance pay loophole for all employees, generating $50 billion in revenue over 10 years — a sum that would pay for health care for 1.4 million adults over the same period.
Another bill in the House and in a half-dozen state legislatures would penalize publicly traded corporations with extreme CEO-worker pay gaps. The city of Portland is already imposing such a surtax on firms that pay their chief executive more than 100 times their median worker.
Ten years after the financial crash, it’s time to rein in reckless executive compensation, and demand our money back.
Sarah Anderson is a co-editor of Inequality.org at the Institute for Policy Studies. Porter McConnell runs the Take On Wall Street campaign.