Reaction Paper on "Against Corporate Executive Pay"

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Reasons cited for extravagant corporate executive pay center on the myth that bonuses help companies perform better, which is better for everyone. This Reaganomics-like model of trickle down benefits is a farce. "There is no evidence to suggest that…massive executive pay packages have motivated CEOs to do better work," (Institute for Policy Studies and the Center for Corporate Policy 2007). In some cases, CEOs are rewarded for doing absolutely nothing, for downsizing instead of reinvesting, and occasionally for running companies into the ground. The example of Merck's CEO Richard Clark receiving a 167% pay hike either in spite of or because of a workforce cut of 7000 people is one of many examples of why there is no connection between good performance and corporate pay. Another striking example is that of Edward Whitacre, CEO of AT&T, "who made $34 million over the years 2004 and 2005, despite a 40-point drop in his company's stock from 2001-2005," (Institute for Policy Studies and the Center for Corporate Policy 2007). A similar situation happened with BellSouth, and with pharmaceutical giant Pfizer (Institute for Policy Studies and the Center for Corporate Policy 2007). In the case of Pfizer, "chief Hank McKinnell and Home Depot's Robert Nardelli made headlines by walking away with about $200 million each, despite steep slides in their companies' stock," (Institute for Policy Studies and the Center for Corporate Policy 2007). There is most certainly no connection between corporate ethical behavior and corporate executive pay. Corporate executive pay seems to instead be directly related to unethical behavior.

Another myth of corporate executive pay that is not borne out in research or practice is the idea that talent is rare. Companies often claim that their chief executives are so precious that to lose them would be disastrous. For this reason, it is necessary to lure the greedy corporate bigwigs with large bonuses. The size of the bonus becomes larger and larger just in case other companies might be waving a bigger, juicier, greener carrot. To assume that CEO talent is rare is a gross insult and a sign of egomania gone wild in the corporate sector. As the Institute for Policy Studies and the Center for Corporate Policy (2007) points out, "with more MBA's than ever before, it's hard to believe that executive talent is in such short supply." A competitive international business market should prove that executive talent is not nearly as rare as avaricious board members would like the consumer to believe.

Stock options are "out of control, boards of directors are incestuous, and "corporate boards often hire compensation consultants to help justify high executive pay packages through peer surveys," (Institute for Policy Studies and the Center for Corporate Policy 2007). This means that companies will hire consultants to say whatever they want them to say, in order to justify outrageous salaries and bonuses.

Setting salary or bonus caps on CEOs does not, as many Americans fear, signal a downward spiral into communism. Fear of communism is one of the most ridiculous social phenomena in America. At the expense of social justice, Americans have opted for plutocracy. Instead of acknowledging the benefits of some forms of socialism, Americans prefer to live in poverty while corporate executives get rich. Social justice and income parity are positive forces in a democracy. The result of excessive corporate pay is gross inequities, and income disparity that is growing steadily. At this rate, the United States is starting to resemble a Third World nation.

Americans seem to enjoy income disparity. As early as 1919, "the richest 1% possessed about 15% of the nation's income (Noah 2010). Income disparity has risen considerably since then. Johnson (2007) points out, "Income inequality grew significantly in 2005, with the top 1% of Americans -- those with incomes that year of more than $348,000 -- receiving their largest share of national income since 1928." Domhoff (2005) refers to "the dramatic change in the ratio of the average CEO's paycheck to that of the average factory worker over the past 40 years." America is sinking into a potentially irreversible plutocratic sinkhole in which corporate executive power is too formidable to overcome due to the collusion between big business and government.

Position Summary and Recommendations

Based on clear, unequivocal data related to the drawbacks of inflated corporate executive pay on social justice, it is recommended that the government take some strong steps toward promoting civil rights. Some congresspersons are attempting to introduce legislation that would reduce income disparity and make America a meritocracy and democracy once more. For example, one congressman tried to introduce a bill that "eliminates corporate tax deductions on any executive compensation that exceeds 25 times the pay of a company's lowest-paid workers," (Institute for Policy Studies and the Center for Corporate Policy 2007, p. 2). For example, "Under this bill, if a company's lowest-paid workers take home $25,000, the company would be able to claim no more than $625,000, for each top executive, as a legitimate deductible business expense (Institute for Policy Studies and the Center for Corporate Policy 2007, p. 2). Shareholders should have the power to authorize corporate executive pay. Thankfully, some legislation has helped shatter the out of control corporate executive pay already. The AFL-CIO (2011) points out, "the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act contains new tools to help limit runaway CEO pay. Shareholders now have a 'say-on-pay' vote on executive compensation, and companies must disclose the ratio of CEO-to-worker pay at each company." The Dodd-Frank Wall Street Reform and Consumer Protection Act is exactly the type of legislation needed to reverse years of rampant greed and unethical business practices that have come to characterize the American business model.

Outside of legislation, each shareholder needs to become more aware of the social repercussions of out of control corporate executive pay. Personal responsibility falls on the hands of each and every individual, who has the right to join labor unions and demand more from their employers. There is no reason why corporate executives should be earning incomes that are a hundred times what their average workers earns. Corporate executive pay breaks the backs of laborers at the expense of greedy managers.… READ MORE