When the United Auto Workers announced their strike against the Big Three (General Motors, Ford, and Stellantis), it was with confidence and conviction, very much in keeping with a wave of labor activity this summer. In the strike launch video, UAW President Shawn Fain declares, “We are once again returning to our roots and reclaiming our tradition of holding the line for working people against unchecked corporate power.”
The UAW’s demands include wage increases (initially 40%, now down to 36%), regular cost-of-living adjustments, and an end to the tiered system that compensates new hires less well than legacy employees. But representatives from the Big Three claim that they’ve already offered workers an “historic contract.”
While a 40% pay increase may sound like a lot, remember that CEO compensation has risen astronomically. In September, Politico reported that Ford’s CEO-to-median worker pay ratio is 281:1, while the ratios at General Motors and Stellantis are 361:1 and 365:1, respectively.
Last year, General Motors CEO Mary Barra made $29 million, much of which came as bonuses based on company performance. (An analysis from the Institute for New Economic Thinking suggests that her compensation may be even greater.) That logic makes sense in some ways—when GM makes a lot of money, so does its CEO. But those profits surely ought to be better distributed among UAW workers creating that wealth before we reach the point of a walkout.
Indeed, this strike could have been avoided were company profits shared more equitably among workers and management. But despite taxpayer largesse that not only rescued the auto industry during the Great Recession but led it to thrive, that has not been the case. Under the Barack Obama-era bailout, workers and company executives were supposed to make sacrifices. But while unions accepted that two-tier wage system that the UAW is fighting, executive compensation has soared.
A situation where executive compensation shoots up like a missile while workers’ wages flatline was not inevitable. In 2021, Congress debated a measure that might have made the strike unlikely and unnecessary. Both chambers considered versions of the Tax Executive CEO Pay Act, introduced by Bernie Sanders, the independent senator from Vermont.
The clever and potentially revolutionary legislation (discussed extensively in Washington Monthly) aimed to rein in excessive executive compensation by levying a tax on companies that pay their CEOs 50 times or more than their median employee earns. The tax came as a surcharge on corporate income tax, meaning that it only applied to profitable companies with federal corporate income tax liability. That surcharge increased as the CEO-to-median worker pay ratio worsened (0.5% for ratios between 50-100:1, 1% for ratios between 100-200:1, 2% for ratios between 200-300:1 and so on, up to 5% for ratios more than 500:1). CEOs could pay more in tax if they wanted to lord over such eye-popping ratios or they could cut their own pay or, better still, raise the wages of their workers, reducing the possibility of the kind of labor strife that we’re seeing this autumn.
Sanders’s smart idea traces back to Portland, Oregon, in 2016. The city authorized a surtax on publicly traded companies operating under its purview that pay their CEO more than 100 times what their median worker earns. In 2020, San Francisco followed suit.
Though Senate Finance Committee Chair Ron Wyden of Oregon seriously considered it, the Tax Excessive CEO Pay Act failed to move in 2021 or 2022. Sanders hasn’t yet introduced it in the current Congress.
Had the act passed, we might live in a different world where companies are incentivized to pay workers higher wages and curtail CEO pay. Consider the Writers Guild of America (WGA) strike this summer—writers were demanding better wages and residual payments for streaming services for their work. At the same time, “CEO compensation last year averaged about $32 million for 13 CEOs at 12 media companies (Netflix has co-CEOs), with several executives crossing the $50 million mark.” The WGA and UAW strikes may have been avoided were the incentives better aligned.
Congress is still contemplating how to address this problem. Senator Sheldon Whitehouse, the Rhode Island Democrat, says plainly: “CEOs are hoovering up the profits that result from increased worker productivity and leaving very little for the people who are actually responsible for those gains.”
Banking is another industry where CEO compensation is sky-high, and compensation incentives have led to increasingly risky behavior. In the wake of this year’s banking crisis, the Senate Banking Committee passed the Recovering Executive Compensation Obtained from Unaccountable Practices Act (RECOUP Act) by a vote of 21 to 2. This bill would allow regulators to recoup bank executives’ compensation from the two years preceding a bank failure. Senate Majority Leader Chuck Schumer has promised it will get a floor vote, and it stands some chance of passage even in the chaotic House. Alas, reassessing corporate income tax rates, as in the Sanders’ bill, is a dead letter for now but could bounce back in 2025 if Democrats take back the House and continue to control the Senate and the White House.
Voters certainly approve of banking clawbacks. New polling from Americans for Financial Reform and the Center for Responsible Lending finds that 75 percent of likely voters, including 71 percent of Republicans, support making it easier for regulators to recover part of what bank executives were paid in the period leading up to their bank’s collapse. Conducted by a bipartisan set of pollsters, Lake Research and Chesapeake Beach Consulting, the poll (sponsored by two public interest groups) found strong support (79 percent of Republicans and 88 percent of Democrats) for recovering bonuses from bank executives who run their firms aground.
If and when the votes are there, Congress can pass something like the Tax Excessive CEO Pay Act to use the tax code to encourage companies not to let worker/C-suite disparities become so obscene. “There is really no justification for a CEO raking in hundreds of times what the average worker at the company is making,” Whitehouse said, “and it’s something Congress can step in to make fairer.”