Want to Reduce Inequality? Reduce It in Corporate Paychecks!
John L. Lewis—legendary leader of the Mine Workers union, founder of the CIO, and father of the mass unionism that created the great middle class of mid-20th-century America—had a prose style we might call Victorian Baroque. And in that style, he once pronounced, “He who tooteth not his own horn, the same shall not be tooted.”
In that spirit, absent that style, I want to celebrate Bernie Sanders’s proposal yesterday to link corporate tax rates to the ratio between CEO pay and median worker pay—a most welcome suggestion that David Dayen analyzes on the Prospect website today. I could, of course, be wrong, but I think I was the first journalist who began banging the drum for this idea, in a piece that the Prospect published in March 2014. I’ve been banging that drum ever since, both in Prospect articles and in columns for The Washington Post and the Los Angeles Times. I don’t think it’s risen to the level of an obsession, but the banging has surely become a percussive refrain in much of my writing on how to create an economy with less stratospheric levels of inequality.
If I can add something new (though actually old) to that din, here’s what business guru Peter Drucker wrote in a 1977 Wall Street Journal op-ed, in a piece headlined “Is Executive Pay Excessive?” “The most necessary innovation,” Drucker wrote, “would be a published corporate policy that fixes the maximum compensation of all corporate executives, after all taxes but including all fringes, as a multiple of the after-tax and pre-fringe income of the lowest paid regular full-time employee.”
“For a small business,” Drucker continued, “it might be 15-to-1. … For the large company a $250,000 to $300,000 top net, after-tax compensation package … would represent a 25-to-1 ratio—and that would take care of all but a very small number of very large companies. … A ratio of 25-to-1 is not ‘equality.’ But it is well within the range most people in this country, including the great majority of rank-and-file workers, consider proper and indeed desirable.”
Of course, in the years since Drucker wrote, no company that I know of has ever instituted such a policy. During that time, the ratio between CEO pay and median worker pay—and note that Drucker was prescribing the ratio between CEO pay and the pay of the lowest-paid worker, not the median worker—has risen, depending on the particular survey, to roughly 275 to 1.
Seldom has business ignored a business guru’s advice more completely than it has Drucker’s—or mine, not that I’m a business guru or even big-business fan. (Though in 2016, one Portland, Oregon, city councilman did read my Prospect piece and persuaded his colleagues to enact a business tax based on that ratio, as former Prospect Managing Editor Amanda Teuscher documented.) Now that Bernie has proposed the idea, it’ll be harder to ignore.