September 30, 2019
This is an important point to mention in reference to Bernie Sanders’ plan to tax corporations with large gaps between CEO pay and the pay of an average worker. High CEO pay is not based on their contribution to corporate profits or returns to shareholders, rather it is a result of their ability to control the corporate boards who set their pay.
This means that the most likely response of companies to a tax on excessive pay gaps between the average and the median worker is to find ways to game the system. For example, they can contract out to other companies the lower-paying work that brings down the average or median pay (it is not clear which would be the reference point from this piece). If shareholders (or workers) had more control of corporations, they would have a strong incentive for reducing CEO pay, since it is coming at the expense of corporate profit and/or the pay of the typical worker.
In this context is important to remember that the excessive pay of CEOs is not just a question of the individual CEO’s salary, it also leads to a bloated pay structure for top executives across the board. This excessive pay for top executives is typically a substantial share (around 10 percent) of corporate profits.
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