Democratic hopeful Bernie Sanders has proposed levying punitive taxes on corporations with CEOs whose compensation is more than 50 times that of the median worker.
Wow? Some CEOs really make that much?
Most CEOs make a lot more, in fact (numbers to follow). You don’t have to be a glassy-eyed socialist like Bernie Sanders to object to the astronomical pay levels at publicly held corporations. Lou Dobbs, a right-leaning Republican commentator, has also raised the issue. Back in 1992, independent candidate Ross Perot complained of “rock star salaries” among America’s CEOs.
Just what do we mean by adjectives like “too high” or “rock star”? In 2018, a CEO at the average S&P 500 company was paid $14.5 million per year. There are plenty of rock stars who would like to be so handsomely compensated.
To put some numbers on Sanders’s proposal: Let’s imagine a company where the median worker earns $50,000 per year. The Sanders surcharge tax would still permit a millionaire salary for the CEO. Fifty times $50K is $2.5 million. Every dollar above that would be taxed at the surcharge.
No one within the mainstream argues that CEOs—or other members of corporate management—should be compensated at the same level as the guy or gal in the mailroom. If that were the case, no one would ever want to rise beyond the mailroom. But there is a point at which compensation becomes excessively high, at a company that the CEO does not own, and did not found.
There are also historical precedents to consider: CEO pay has risen 940% since 1978. During the same period, the compensation of the average worker has risen only 12%.
Something is out of whack there, as my grandmother would have said.
CEO pay of the immediate postwar years was far more restrained. Average workers did very well during the period from 1947 to 1972. For decades, the general rule of thumb was that the top man (and yes—it was always a man, in those days) ought to make about ten times what the average worker makes.
This is the number I often heard cited as “common sense” during my years in the Japanese automotive industry: 平社員の十倍ぐらい. Japanese CEOs make considerably less than their American counterparts, and they always have.
What brought about the change in the American corporate mindset?
It’s important to remember why there was so much self-restraint among the CEOs of yesteryear in the first place. During the 1950s, there was a widely shared understanding that America was locked in an epic struggle: between free-market, liberal capitalism on one hand, and top-down, command-and-control socialism on the other.
American CEOs of the 1950s knew that the Red Menace didn’t reside solely in Moscow. They remembered the surge of interest in Marxism in America during the 1930s. Many senior managers were old enough to remember the U.S. presidential election of 1912, when “card-carrying” Socialist Party candidate Eugene V. Debs also carried 6 percent of the popular vote.
By the mid-1950s, revelations about what life was really like in the workers’ paradise of the USSR had tarnished the image of Soviet-style Marxism. But there were still plenty of Marxists around, even if they preferred to call themselves something else.
American CEOs of the 1950s understood that in order for free-market capitalism to flourish, a plurality of Americans had to recognize that they had a stake in maintaining the free market. During this period, millions of average workers (including my grandfather, who worked in a Ford Motor Company plant) prospered under American free enterprise.
Of course, the CEOs and senior managers prospered more—but not 290 times more, which is the current average.
The end of the Cold War brought about psychological and philosophical changes in the American boardroom. (So, too, did the overarching focus on shareholders, versus stakeholders.) Today’s CEOs might not actually see the publicly held corporations they control as their private bank accounts; but they certainly give off that impression.
We now face another threat to the American way of life. It is not Soviet-style communism this time, but a generalized leftwing anarchy, as embodied by rock-throwing antifa goons, and far-left politicians like Alexandria Ocasio-Cortez and Ilhan Omar (not to mention Bernie Sanders himself).
The future direction of America will be determined not by Americans in MAGA hats, nor by Americans who obsess about their role in the #RESIST movement. The future direction of America will be determined by that great mass of Americans in the middle.
And that mass of Americans is likely to choose freedom and the free market—but only so long as they see capitalism as a system of individual effort-and-reward, not as a game rigged for the benefit of a handful of CEOs.
Bernie Sanders longs for a world in which the government decides everything—including CEO pay. We would be better to have a world of free markets and minimal government interference. But this will require CEOs to exercise self-restraint, like the CEOs of the Cold War era.