Simple Executive Salary Fix

I have had this idea for addressing the outrageous executive salaries that we have seen explode recent years kicking around in my head and thought I would lay it out here and see if anyone thought it was a good idea.

In short I propose something of a luxury tax - on companies, not individuals - who take home extremely high amounts of compensation.

It would go like this.

First, it would be limited to publically traded companies with 500 employees or more.  So any claim of hurting small business or entrepreneurs would go out the window.   This would primarily impact Wall St., the big banks, the oil companies, big pharma, etc.

At these companies that qualify you would average the salaries of all employees except the executives and board members.  Then take that average and multiply it by 40.  So at a company with an average salary of 60,000 the magic number would be 2,400,000.

From there any company paying an employee more than $2,400,000 would be taxed at 70% on every dollars worth of compensation over.  When it doubles, at $4,800,000, the company would taxed at every dollar over the 4.8 at 95%.  

I place the tax on the company not on the individual for a few reasons:

1) Americans like the idea of making a lot of money, even if they themselves don't and they would in my opinion, view a tax on the individual as punative, where they may not view it as such if it is placed on a large, faceless corporation.

2) Being that it would be paid by the corporation it would get the shareholders attention.   They would focus on a $15,000,000 compensation package long and hard.

3) Execs would be forced to explain the salaries in conjunction with their usual talking points about "doing what is best for shareholders" and "protecting the bottomline".   Would a luxury tax be best for shareholders or help the bottomline?

Would this end massive payouts?   No.  At companies with billions in profits they would suck it up and pay the tax ... and more power to them if they are making money and can afford such payouts.   But it would focus everyone on the issue.  

It would bring to light what the average workers are making and maybe even give execs a small incentive to boost the average.  It would also focus shareholders and board members on whether the CEO, or Exec VP, or whomever, is reeeally worth a 10 or 15 or 20 million dollar tax.   I bet at companies showing losses the answer would finally be "no" they are not.

Tags: compensation, executive pay, salary, Wall St. (all tags)



Re: Principles of Sound Tax Theory

Simplicity is certainly one of the core principles of sound Tax Theory. There are others as well.

'Tax theorists typically measure revenue structures according to the criteria of economic neutrality, efficiency, equity, administrability, simplicity, stability, and sufficiency.'

Explained here: p02.htm

We should examine your idea against those and tweak it if needed. We might need to tweak it a bit, but I'd be willing to help get it into a form we could present to a member of congress.

Tax or revenue bills begin in the House of Representatives Ways and Means Committee. Any individual representative may propose a tax bill, but it will be reviewed by the committee for a recommendation to the House as a whole whether it should be passed or not.

by QTG 2009-10-16 09:04AM | 0 recs
Re: Principles of Sound Tax Theory

Thank you for your reply.  How does an ordinary citizen get something like that moving ( I do recall a Simpson's episode where a paper clip played an important role ... but that Hollywood)?

by RichardFlatts 2009-10-16 12:40PM | 0 recs
Re: Principles of Sound Tax Theory

We may be straying a bit, or getting the cart before the horse, but here's what I know:

There is no mechanism for a "National (or Federal) Initiative" like many states have. But there is a movement (Mike Gravel is perhaps the Father of this). It has a lot of interesting endorsers (see 3rd link) and may get more notice pretty soon (see 1st link) and you can vote to move this forward sort of (see 2nd link). ongressman-jared-polis-on-record.html

by QTG 2009-10-16 01:52PM | 0 recs
Re: Endorsers of the National Initiative

(my clicker slipped)

by QTG 2009-10-16 01:54PM | 0 recs
Re: Simple Executive Salary Fix

Agree about luxury tax, disagree about levying the tax on corporations and not individuals. I would apply it to individual incomes.

by ajpuckett 2009-10-16 09:38AM | 0 recs
Two problems

One, then it just becomes "liberals hate the rich" and it goes nowhere.

Two, individuals in this country DO have a right to make as much money as they can legally.

Its the corporate entity that we must hold responsible.

by RichardFlatts 2009-10-16 12:38PM | 0 recs
Re: Simple Executive Salary Fix

Only one problem!

Under current Corporate Laws of Delaware where 99% of Corporations are Incorporated shareholders has no say in the Executives Pay, Bonuses and Benefits nor in the Directors Retainers. Both are fixed by Directors - similar to congressional Pay.

To have some teeth Congress shall have a Law overriding Delaware's Corporate Law by giving Share Holders an approval Power for both Directors' Retainers as well Executives Total salary including benefits and payment on their departure from Company!

Or even better - By law require all directors to provide 5 items they would work on for benefit of Shareholders and betterment of Company if they get elected, and if they loose majority of Votes they shall resign and leave the company, period - not a B.S. of submitting resignation and than fellow director asking them to stay, and they stay!

by PK 2009-10-17 01:10PM | 0 recs
Re: Simple Executive Salary Fix


So, PK, are you claiming that Obama's attempts to rein in Executive compensation by 'cheer-leading' and 'shaming' is about all he's legally able to do? That would mean he's constrained by law and really sn't FAIL on this. Interesting...

by QTG 2009-10-18 06:14AM | 0 recs
Re: Simple Executive Salary Fix

Instead of 'cheer-leading' and 'shaming' he should have forced Dems in both houses to resolve underlying problem, i.e. giving shareholder a power to remove directors who work as cohort and pimps of executives.

Right now candidate for director needs just one affirmative vote irrespective of how many are against electing that director under Delaware Corporate Law. I have consistently voted against the Board of Directors who are part of Compensation Committee as many including labor Unions, and still with more than 50% against the director they get elected as they would vote their own share which are given to them by Corporation on their election to board as a part of their renumeration.

Remember Federal Law can override the state laws, but Dems in Congress has to stop taking money from those Directors and Executives and pass the law giving share holders a power to vote them out.

Remember Dems were in majority in both house except brief time during President Regan's time till they lost control in 1994.

Remember majority of current Dem member of house and senate were there during that time and had and still have cozy relationship with those executives and directors! Why - because after they leave the house or senate they can become board member!

So instead of blaming just conservatives look for real root cause, and voice your anger against those so called Progressive hypocrites in the Democratic Party who just gives lip service to get your and my votes and vote them out in 2010!

by PK 2009-10-18 11:22AM | 0 recs
Re: SO

Your suggestion for solving the problem of excessive Executive Compensation is to vote against Democrats in 2010?

Well, that certainly meets the requirement of simplicity.

by QTG 2009-10-20 09:36AM | 0 recs


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