If the pay of minimum wage workers in the 1990s had kept pace with the growth of salaries of the nation’s corporate CEOs, those workers would now be earning $25.50 an hour instead of the current $5.15 an hour. Additionally, CEOs who received some of the highest compensation in the ’90s did so at a time when their companies’ performances were mediocre or when those companies were laying off workers by the thousands.
This according to a new report issued by United for a Fair Economy (UFE), a Boston-based, non-partisan organization that tracks the nation’s growing economic inequality. The report, entitled “Executive Excess 2001,” found that between 1990 and 2000 executive salaries jumped 571 percent, before adjusting for inflation. In contrast, the average pay of workers during that same period grew at a rate of only 37 percent, only slightly ahead of inflation at 32 percent.
The report also found that CEOs at companies that announced layoff this year of 1,000 or more workers earned on average 80 percent more than the executives at 365 top firms. In fact, CEOs responsible for the most layoffs increased their salaries and bonuses by nearly 20 percent in 2000, compared to the average raise for workers (about 3 percent) and for salaried employees (about 4 percent).
“This is not the free market,” says the UFE’s Scott Klinger. “It’s a corporate compensation system that has been skewed to benefit those who are corporate managers.”
This is the eighth year that UFE has analyzed the widening gap between the nation’s highest and lowest paid workers. Klinger says that the problem was only worsened this year with the passage of President Bush’s tax plan, which reversed many of the progressive tax policy gains made in the 1990s.
What’s more, UFE found that many of these CEOs are cashing in on their companies’ tax rebates. For example, between 1996 and 1998 41 large, profitable corporations used special tax rebates and credits to reduce their tax bill to less than zero and actually received rebate checks from the U.S. Treasury. At six of those companies, the CEO’s raise consumed the company’s entire tax rebate that year.
One bill in Congress, sponsored by Rep. Martin Sabo’s (D–Minn.), would mandate that only salaries that are 25 times or less than the lowest salary paid in an organization would be deductible for tax purposes. Under this so-called “Income Equity Act,” companies would still be allowed to pay their employees whatever they want, but could not deduct salaries that the law considers “excessive.”
“Just like we’ve defined two drinks that you can deduct at a business lunch and the third one you can’t deduct, this bill tries to define what’s reasonable in terms of corporate compensation,” says Klinger.