Many years ago, we had news stories about someone occupying a chair at a major brokerage firm for six months while “the board” searched for a full-time candidate. After attending only a handful of meetings, this individual pulled the ripcord on a $360 million dollar golden parachute. Needless to say, the blue- and white-collar workers who had retirement accounts holding mutual funds managed by said brokerage firm were immediately crying foul. The brokerage firm brushed aside the complaints of little men and the inquiries made by government officials. They knew better than such little minds. Of course, after the recession that Garter Group built, that brokerage firm doesn’t exist anymore. So much for knowing better.
Many of you will refer to this as “The 100-Fold Rule,” since executives and members of the board of directors cannot be paid directly or indirectly more than 100 times the amount paid the lowest employee or contracted worker. The act only impacts publicly traded companies and despite all of the gnashing of teeth and rending of garments about having to pay for better management, this act really does look out for shareholder interest.
Here’s a link that has a really nice chart showing how the ratio of CEO salaries to minimum wage has taken off towards the stratosphere.
What is interesting is that during the 60s and 70s, the ratio never got to be more than 78 times minimum wage and, speaking as someone who lived through that era, we were all pretty well off employment and wage-wise. (Yes, you have to skip over the Vietnam and Korean wars, as they are separate discussions.) As recent as 2005, the ratio was over 820 times that of minimum wage. I think I can speak for most of us when I say 2005 wasn’t anywhere near as good a time as the 60s and 70s for the average working stiff. We had a massive rush to offshore everything, except the board of directors and executive management, so both of those groups could make more money. Health insurance was priced out of reach for most people, and a bottom feeding, 4-door family sedan was priced in the mid $20K range while a fully loaded 4-door family sedan was $4-6K during the 60s and 70s. For those of you too young to remember this, please read the following:
In its May 1971 issue, Motor Trend magazine published a comparison road test that included a Caprice Coupe and a Cadillac Sedan de Ville. The tested Caprice was powered by the 454 V8 and loaded with virtually all available options to provide a more equal test of the two cars and match the level of equipment and opulence of the Cadillac. Though M/T noted that the Cadillac had a higher level of quality than the Chevrolet along with a far more luxurious interior (the DeVille was upholstered in leather while the Caprice had the standard cloth trim), the magazine ultimately considered the Chevy as the better value in its loaded form at $5,550.35 (base price $3,740) compared to the Cadillac’s $9,081 price mainly due to the price spread of the two cars as tested and the fact that the $3,500 price difference bought only a bit more quality and a few more trick luxury options.
Yes, the executives have a duty to make shareholders money, but as history has shown us, very little (if any) of that money ever finds its way into shareholder hands. The chart I found only lists the dramatic increase in CEO pay, not all upper executives or board members. Every time there is any mention of raising the federally mandated minimum wage, there is a great complaint from mom-and-pop shops that claim they will go out of business the week the wage increases, and for the most part, they aren’t really lying. However, we can raise the minimum wage without raising the minimum wage. With one simple act, we can also drive prices down AND get more healthcare coverage provided to the token few American workers left in this country.
The Ethics in Income Act
No executive, consultant, or board member working for or providing services to a publicly traded company shall be paid either directly or indirectly via said publicly traded company more than 100 times the amount paid both directly and indirectly to the lowest of either the lowest paid employee (regardless of what country said employee resides in) or the lowest paid employee or contractor of a subcontracted firm (regardless of what country said employee or contractor resides in.)
The IRS will be completely in charge of enforcing this regulation and shall enforce it in the following manner.
First violation – upon discovery, the defendant has the option of simply paying the over payment plus penalty to the IRS as determined by the IRS, or the option of challenging the IRS discovery. If the defendant opts to challenge and loses, they will not only have to pay the monies owed as determined by the IRS, but serve 30 days in a medium security Federal prison without early release or parole.
Second violation – upon discovery of a second instance, the defendant has the option of serving 60 days in a medium security Federal prison in addition to paying the fines and penalties determined by the IRS. If the amount was very small, the IRS could choose to wave the prison time for an additional penalty payment. All members of the board of directors are subject to pay the same amount, as agreed to by the defendant, as they are ultimately responsible for ensuring this type of thing never happens. Should the defendant choose to challenge the finding and lose, all parties will pay the monies and penalties as determined by the IRS and serve 6 months in a medium security Federal prison without parole or hope of early release. No waiver of prison time is allowed if challenge is issued.
Third violation – Once again, if the IRS determines the amount was very small (under $5K and an honest math or monetary conversion error), the defendant may be allowed to pay the monies and penalties owed, as determined by the IRS, without serving time. If the IRS determines the act was deliberate, the defendant and all members of the board of directors shall pay the monies determined by the IRS and serve one year in medium security prison without parole, pardon, or option of commuted sentence. Should the defendant choose to challenge the finding and lose, they and the board of directors will not only pay the monies as determined by the IRS but will be required to serve seven (7) years in medium security Federal prison without hope of parole, early release, or pardon.
Any subsequent violation results in a prison sentence of life for all involved. Violations need not happen at the same publicly traded company. All four violations might happen at different publicly traded companies.
The definition of “directly or indirectly” is quite simple. Directly is defined as pay through wages, bonuses, stock options, and non-cash perks such as trips and trinkets. Indirectly is defined as pay via a second or third party that does business with the publicly traded company in some way, not limited to pay through wages, bonuses, stock options, non-cash perks (such as trips and trinkets), or outright kickbacks (be they cash, bonds, stocks, rented cars, houses, hotels, boats yachts or other items). The IRS totals up the value of all these things when determining if the executive or board member violated the act.
The lowest paid employee, subcontractor, or employee of subcontractor is quite simple to determine. These people need not be in the United States of America or even in a country legally to be counted. All that is required is that they were paid. If your company opens an IT office or joint venture in India and pays workers there $10/day U.S. The maximum total combined pay any executive or board of director may receive would be $1000/day U.S. If your company has many retail locations and you subcontract the cleaning work to one or more companies that use illegal aliens who are paid $1.50/hour, then the maximum total combined pay an executive or board member may receive is $150/hour for a standard 2,000 hour year.
This law does not say that an executive of a publicly traded company cannot make $360 million in one year. It says that in order for them to do that, the lowest paid (direct or indirect) employee must make $3.6 million. Instead of walking on the backs and heads of the lower social classes, if you reach your hand into the limitless piggy bank known as the U.S. stock market, you are required to bring the bottom along and let them share equitably in your success. This law does not govern non-publicly traded companies.
Once this law is implemented, it will begin to improve wages for those working everywhere. Far too many blue-collar workers were laid off or took wage cuts that upper management never shared. When one searches hard enough, they will even find out that the grain elevator in Podunk U.S.A. (population 138) happens to be owned by Cargill, or Con-Agra, or some other publicly traded agriculture-based company. In order for the CEO to make $10 million in combined compensation, the lowest paid worker they have anywhere in the world has to make $100K. I don’t know if you’ve checked the cost of living in Podunk U.S.A., but $100K is a lot of money there.