Strengthen 'say on pay' to rein in executive salaries

Pittsburgh Post-Gazette editorial board (TNS)
The federal government ought to strengthen the power of shareholders to oppose executive compensation packages. (Dreamstime/TNS)

Culture wars continue to polarize U.S. politics, but Americans on both sides of the cultural divide should agree that the growing gap between the richest Americans and average folks undermines democracy. The average compensation for a CEO at the country’s largest companies hit $20 million this year, up 31% since 2020. That’s 275 to 350 times the wages of median workers.

Shareholder votes is one check on this kind of dangerous inflation, and making that vote binding would strengthen it.

Since 2011, public companies have been required to hold a non-binding shareholder vote on executive compensation packages. It’s not exactly democracy — the dominant shareholders are usually the super-rich as well — but it does give someone outside the c-suite a chance to object. Unfortunately, only about 3% of votes result in rebukes.

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Several European countries have made these votes binding on corporate boards. It’s not a cure-all for executive pay inflation, but the U.S. should follow suit.

The salary figures at Pittsburgh-based firms follow the national trend. Data compiled by the Post-Gazette in the Fortunate 50 shows the top 50 highest-paid executives at local companies made, in sum, nearly $500 million last year. That’s about 80% of the annual tax revenues for the entire City of Pittsburgh.

Americans often assume there’s no other way to organize the economy than what they see — that exorbitant executive salaries, even if unseemly, are a fact of life in a capitalist society. That’s what the powerful want ordinary folks to believe, but it’s not the case.

In 1965, for instance, the average CEO made about 21 times the salary of his company’s average employee, reports a 2021 study by the Economic Policy Institute (EPI). That’s a healthy ratio that may actually reflect the real value of an executive to his or her company. A ratio of 300-to-1, however, is simply an exercise of raw power over logic.

The late 1980s brought a radical change in how American businesses thought about pay and justice. The ratio grew to 61-to-1. And it has only climbed since.

Consider these extraordinary numbers from the same EPI report: Between 1978 and 2021, the average CEO salary at top companies had increased 1,322%. The S&P 500 index went up 817%. And average workers saw their wages go up 18%.

It doesn’t take a socialist to see something’s wrong here, and you don’t have to be a socialist to worry about it. In fact, ardent capitalists should worry the most about a glaring injustice that erodes trust in the American economic and political system.

To preserve that system, the federal government ought to strengthen the power of shareholders to oppose executive compensation packages.