Inequality Has Soared During the Pandemic—and So Has C.E.O. Compensation

Legislators, including Bernie Sanders, aim to do something about it.
Arnold Donald president of Carnival Corporation onstage in front of the company logo.
Arnold Donald, the C.E.O. of Carnival Corporation, got $5.2 million in retention and performance-based stock awards last year.Photograph by David Paul Morris / Bloomberg / Getty

What would it take to arouse a sense of financial restraint among America’s top corporate executives and the people who set their pay? More than a global pandemic, it turns out.

The C.E.O. of the cruise-ship operator Carnival Corporation, Arnold Donald, got $5.2 million in retention and performance-based stock awards last year, lifting his total 2020 compensation to an estimated $13.3 million—nearly twenty per cent more than his 2019 total. His company, at the time, was running up ten billion dollars in losses for the year and earning a place of prominence in two streams of undesirable media coverage. One emphasized Carnival’s tally of infected passengers and crew, which eventually exceeded fifteen hundred and led to dozens of known deaths. (Cruise ships were described as “floating petri dishes” in more than a few accounts.) Another focussed on the hundreds of Carnival employees who had been fired or furloughed, some while still at sea, making their plight the starting point for a discussion of the industry’s low salaries (typically ranging from five hundred and fifty to two thousand dollars a month) and onerous work conditions.

Like many companies, Carnival had a preset formula for determining its C.E.O.’s pay. After the virus struck, it was one of at least fifty major U.S. corporations that took steps to adjust the results upward, according to an Institute for Policy Studies report. Coca-Cola, Chipotle, Tyson Foods, and Hilton, among others, likewise concluded that it would be wrong to hold executives responsible for circumstances beyond their control. Meanwhile, in sectors of the economy that prospered during the pandemic, companies were equally united in deciding that it would be fine to give their executives credit for it. The food-delivery and pharmaceutical businesses thus produced two of 2020’s biggest compensation packages: $413 million for Tony Xu, of DoorDash, and $135 million for Leonard Schleifer, of Regeneron. The upshot was a year of spectacular gains for top executives across the board—a year, in short, like just about every year in recent memory. The coronavirus did, however, have a salutary effect: it inspired a number of influential critics of corporate compensation practices to consider the possibility of outside intervention.

Modern corporations originated, in imperial Britain and the post-colonial United States, as enterprises dedicated to public projects. A group of people undertook to colonize a distant land, found a university, or build a railroad or canal, and applied to the government for a charter. Today’s corporations pursue all manner of business activities, and charter approval is automatic. Just the same, a duty to serve the public good remains part of the understanding that entitles them to a distinct legal identity and the right to sell stock, make contracts, and take on financial obligations that cannot be held against individual investors. This country has private corporations running hospitals, airports, prisons, and road and water systems, among other life-and-death enterprises; in all these areas, and in lines of business less directly linked to human health and safety, we have had many occasions to experience the dangers of extravagant, “performance-based” compensation.

The financial and economic meltdown of 2008-09 was a standout lesson in those dangers. At Goldman Sachs, Citigroup, Countrywide, and A.I.G., among other fomenters of the disaster, the housing bubble made a coterie of executives and traders stunningly rich, and their pay arrangements—heavily composed of stock in a time of high market volatility—spurred them to go on packaging and peddling sketchy mortgage-backed securities and derivatives as long as they thought they could get away with it.

In the postmortem analysis, policymakers took due note of this problem and proceeded not to do much about it. The Dodd-Frank financial reforms of 2010 included a vague injunction against bank compensation packages that might spur executives to take “inappropriate risks.” But the implementation was left to a milquetoasty collection of federal agencies, and they spent the Obama years dickering over the details, before their Trump-appointed successors put the project on hold. (The Biden team of financial regulators has taken it up again, with no clear timeline yet for issuing a set of final rules.)

Deep in the fine print of Dodd-Frank, however, was a disclosure clause that has opened up a new avenue of thinking. Public companies have long been required, as part of their annual filings to the Securities and Exchange Commission, to reveal the total compensation of their highest-paid executives. Now they also report their top-paid executive’s total as a multiple of the amount earned by their median worker. Since 2017, when this provision took effect, the collection and analysis of pay-ratio data has become an annual media event, calling added attention not only to the scale of current C.E.O. compensation but to a body of research illuminating its place in a four-decade-long national story of sharply rising economic inequality.

In 2020, the data shows, the average C.E.O. of an S. & P. 500 company made $15.5 million—two hundred and ninety-nine times as much as the median-paid employee. Although we do not have directly comparable numbers going back in time, a forthcoming study by Lawrence Mishel and Jori Kandra of the Economic Policy Institute tracks the average C.E.O.’s pay and the average worker’s pay (and the ratio of one to the other) for the three hundred and fifty largest public companies in the United States. They estimate that, in 1978, the average C.E.O. made $1.7 million, adjusted for inflation, which was 31.4 times the average worker’s pay. Since that time, the share of all wages and salaries collected by the highest-earning one per cent of Americans has almost doubled, reaching its current level of about thirteen per cent. Roughly forty per cent of the people who make up that one per cent are executives, and their escalating compensation, Mishel and Kandra argue, has spilled over to other top managers in for-profit firms and large nonprofits alike. The power of example aside, today’s corporate executives frequently derive financial benefit from actions (outsourcing, downsizing, merging, defeating union drives) that directly or indirectly reduce pay and opportunity further down the line. In this way, too, executive pay has arguably been a significant driver, and not just a symptom, of rising inequality. That insight has led a growing number of local, state, and federal lawmakers to develop policy proposals that would reward or penalize companies based on their pay ratios.

One such measure was introduced in the House of Representatives a few weeks ago by Jan Schakowsky, an Illinois Democrat. Since 2006, Schakowsky has been sponsoring legislation to establish guidelines of good behavior for federal contractors and suppliers. Her current bill would give preferential treatment in the bidding process to companies that comply with environmental laws, respect labor unions and organizing campaigns, and elevate substantial numbers of women and people of color into top management. Companies would also gain an edge for a C.E.O.-to-median-worker pay ratio of less than a hundred to one.

With Congress debating infrastructure plans that could funnel hundreds of billions of dollars to private contractors, Schakowsky’s idea ought to have strong appeal. It should be particularly attractive to an Administration committed, as President Biden likes to say, to building an economy “from the bottom up and the middle out—not the top down.” If that goal shapes the selection of projects, Schakowsky reasons, it should apply to the choice of partner companies as well; otherwise, the government will be unravelling with one hand what it is trying to accomplish with the other.

Federal contractors account for only a small part of the corporate universe, but they include a number of companies that have been extraordinarily generous to their top executives. Lockheed Martin, for example, paid its C.E.O. $23.4 million last year; that was a hundred and eighty times the median Lockheed employee’s pay. The corresponding, self-reported figures were $44.3 million and 257:1 for Microsoft; $23.2 million and 182:1 for Cisco; $22.4 million and 217:1 for Intel; $21 million and 193:1 for Raytheon; $20.8 million and 205:1 for Northrop Grumman; $19.3 million and 174:1 for General Dynamics; and $19 million and 258:1 for Texas Instruments—major federal contractors all. Palantir, a software company specializing in data gathering and analysis, derived more than half of its 2020 revenues from government contracts. Last year, its C.E.O. received compensation (mostly in stock awards and options) valued at $1.1 billion. If the government threatened to reduce the volume of business it does with these companies, then corporate leaders, directors, and shareholders would have something to think about.

Stronger measures have been proposed. Senator Bernie Sanders, of Vermont, who now chairs the Budget Committee, has introduced a bill to impose a graduated surtax on companies with pay ratios of at least fifty to one. His proposal draws inspiration from local business taxes enacted by the city council of Portland, Oregon, in 2016, and (through a voter referendum) by the people of San Francisco in 2020. Similar tax measures have been introduced in the legislatures of at least nine states.

Portland’s tax—the only one already in effect—netted around five million dollars in 2019. Sanders’s federal version would cut far deeper and raise far more money. Walmart, which paid $3.2 billion in corporate income taxes in 2018, has a C.E.O.-to-median-worker ratio of about a thousand to one. (Its C.E.O. made twenty-two million dollars last year, while the median worker made twenty-two thousand.) Under Sanders’s formula, according to a Senate staff estimate, Walmart would have owed an extra eight hundred and fifty-five million.

The sums of money lavished on this country’s corporate executives long ago passed out of any range that could be justified as a fitting reward or a useful incentive. To go by the polls (many polls, including this recent one by a Stanford University research group), Sanders’s Tax Excessive CEO Pay Act would be a shoo-in if (as in San Francisco) the question were put to the electorate directly. A tax of this kind could also help extricate Democratic legislators from their wrangling over how much to raise the corporate tax rate in order to finance their public-investment plans: they could settle on a broadly acceptable level for corporations in general, and stepped-up rates for those with the most out-of-control C.E.O. pay.

Corporate America would raise a huge ruckus, of course. But lawmakers would have an excellent comeback. To the inevitable stream of protesting lobbyists, they could say: all that your client companies have to do (under the Sanders formula) is lower the C.E.O.’s pay to $1.5 million and raise the typical worker’s pay to thirty thousand dollars, and they won’t have to pay an extra dollar. It’s their call.


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