Stopping the Use of the Corporation for the Upward Transfer of Wealth
“Bosses should earn at most 20 times the pay of their underlings.”
-John Pierpont Morgan
This is the third in the series on how the corporation is used for the upper transfer of wealth. The series starts here.
Could you have used 67% more this year in your paycheck? A research report by the Rand Corporation — a conservative think tank, please note — first commented that for three decades following World War II, America saw a period of economic growth that was shared across income distribution.
Then the report found:
“…that aggregate income for the population below the 90th percentile over this time period would have been $2.5 trillion (67 percent) higher in 2018 had income growth since 1975 remained as equitable as it was in the first two post-War decades.”
* Excessive executive pay.
* Buybacks.
* Dividend stripping.
Super Salaries
* The CEO-worker pay gap at the Low-Wage 100 averaged 603 to 1 in 2022.
* Chief executives in this group raked in $15.3 million on average in 2022, while median worker pay averaged just $31,672.
Live Nation Entertainment had the fattest CEO paycheck and the widest pay gap. Michael Rapino hauled in $139 million, 5,414 times as much as his firm’s median of $25,673.
Also noteworthy for reform purposes:
* Of the 100 companies in the sample, 51 received federal contracts worth a combined $24.1 billion during fiscal years 2020–2023.
* These same low-wage federal contractors spent nearly $160 billion on stock buybacks over the course of these years.
The Real Welfare Queens
* Nearly one-third (31 percent) of the families of bank tellers are enrolled in one or more public programs.
* The cost of public benefits to families of bank tellers is nearly $900 million per year.
In the same year of that study, The Wall Street Journal reported that WellsFargo CEO John Stumpf earned $22.9 million — a nearly 16% increase from his 2011 salary. But the average Wells Fargo bank teller made less than $11 an hour, or approximately $22,600 a year, according to job site Glassdoor.
In another study , Sarah Anderson, Sam Pizzigati and Brian Wakamo, again writing for The Institute for Policy Studies, noted that with the Lowe’s buyback of $13 billion in 2023, the company could have given each of its 325,000 employees $40,000. Instead, worker median pay fell 7.6 percent to $22,697.
Ineffective Reforms (Again)
The reform for executive pay in Dodd, Frank required corporations to put the item of executive pay on the agenda of the Annual General Meeting for a non-binding vote. It was based on a complete misunderstanding of the role of the proxy, and the willingness of equity hedge funds to unite with executives in approving outsized executive pay- as long as those executives would strip out the company’s yearly profits in dividends.
More on how the CEOs use the proxy form to usurp the power of shareholders and elect the Board of Directors that sets their salary here.
Present reforms that suggest taxing corporations where the ratio executive/worker pay is greater than 100 to 1 will also be unsuccessful. This method will not reduce executive pay by one penny. The executives and the equity/hedge funds won’t care about the corporation paying that tax. While the tax will raise some revenue for the state, it will do nothing to help workers obtain a fair paying wage.
Citizens United
Along the line of ineffective reform, a common attack on the offensive case of Citizens United v. FEC aims at revoking corporate personhood. Those who rightly oppose it wrongly believe that the decision was based on corporate personhood. They are chasing a red herring.
* In Citizens United, the court did not decide the issue on corporate personhood.
* It struck down the law restricting contributions by all collective entities such as corporations, unions and associations, not just corporations.
* The Court said those contributions did not present a substantive threat of corruption provided they were not coordinated with a candidate’s campaign.
Writing the majority opinion, Justice Kennedy quoted the earlier case , Buckley, 424 U. S., at 48–49: “The worth of speech does not depend upon the identity of its source, whether corporation, association, union, or individual”.
Corporations are created by statute that gives certain rights such as the ability to make contracts. The courts may add or deny additional rights. Corporations do not have all rights. For example, they do not have the right to plead the Fifth Amendment.
Writing the dissent, Justice Stevens made it clear that the issue was a question on giving rights to the corporate person. The right to donate to a political cause, even indirectly, was not a right that should be given.
Legal entities like corporations, Stevens wrote, are not “We the People” for whom our Constitution was established. Therefore, he argued, they should not be given speech protections under the First Amendment, which protects individual self-expression and self-realization.
Courts in other countries have upheld restrictions on campaign donations of all persons, corporate and human, on the basis that letting the wealthy have unlimited political contributions to fund advertising campaigns means rule by the rich. For example, in Canada, a former conservative Prime Minister, Steven Harper,tried to get an exemption from campaign donation restrictions for a Super PAC. His claim was denied.
Effective Reform Proposals
In his Capitalism in the 21st Century, economist Thomas Piketty detected the categories of income and capital that created the present wealth gap:
* Income: high executive pay, especially in the financial industry.
* Capital: values, including house prices, rising above worker wages.
To be productive, reforms are needed in both those areas. However, in this post we can only look at how reforms in the corporation can affect income. Capital reform requires separate treatment.
Income Tax: Tax executives directly (not the corporation) where the executive pay ratio is beyond 20 to 1 at 70% and ensure this tax benefits the salaried classes. For example, reduce the taxes of those that make under $60,000 by the amount collected.
Or, more simply, ‘tax the rich’. In the post-World War II period mentioned in the Rand Corporation study quoted above America’s prosperity flowed down:
*The average family could afford a house, etc.
* The workers’ salaries were 67% higher than today.
Buyback Insider Trading: Repeal SEC Rule 10b-18. Recognize that permitting the executives to cause their corporation to buy their shres is insider trading and absolutely prohibit it as once was the case before the Reagan safe haven amendment. Executives can sell their shares in the open market, but never to their corporation.
For more on when buybacks are harmful as insider trading, see:How All Profits Are Dangerously Stripped Out of a Corporation.
* Shareholder Value: Abolish the Freidman theory of shareholder value. Declare by legislation that the directors do not have an obligation to pay shareholders the complete yearly profits of a company as other countries have done.
Cartoonist Tom Toro for the New Yorker Magazine captured the unenlightened self interest in the shareholder value theory.
* Strengthen Unions: Even if the above reforms are putting into place, and the funds remain in the corporation, they will not go to the better pay for the workers. For that, stronger unions are needed.
* Federal Contracts: Congresswoman Jan Schakowsky (D-IL)) and Congressman Danny K. Davis (D-IL) introduced the Patriotic Corporations of America Act of 2021. As Schakowsky says on her website: “The privilege of receiving taxpayer dollars should go to companies that are helping to build and strengthen this country, not the ones whose behavior is harmful to American society or the planet.”
By its terms, companies will be required to meet the following criteria, among others, to qualify for federal contracts:
● Pay Fair Wages: Pay workers $15 per hour or 110% of the federal minimum wage, whichever is higher.
● Commit to Unions: Sign agreements committing to remain neutral in union organizing campaigns and not hire replacements or close a business in response to a work stoppage.
● Respect Union Rights: Has not been found in violation or settled a claim for a violation of labor union rights.
● Just Environmental Behavior: Has not paid a penalty or settled a claim in connection with the violation of an EPA regulation in the preceding five years.
Additionally, companies will get preference in the federal contract bidding process if they meet the following criteria, among others:
● CEO Pay: Does not have a CEO-median worker pay ratio of more than 100 to 1.
Now we must develop consciousness in the voting public that a greater share of corporate profits could easily be given to workers without raising prices or affecting lucrative dividends-and so Make America Fair Again (MAFA).
Originally published at https://jandweir.substack.com.
