By Katrina vanden Heuvel
September 03, 2009 “The Nation” — One year after the global banking system collapsed the Institute for Policy Studies (IPS) 16th Annual Executive Excess report — “America’s Bailout Barons” — shows that the perverse system of executive compensation which contributed to the financial meltdown is still thriving for top bailout recipients.
President Obama had it right in April when he delivered his “economic Sermon on the Mount ” and said, “We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock.” And, as the IPS report notes, even earlier in the year Obama spoke out against excessive executive compensation, saying, “In order to restore our financial system, we’ve got to restore trust. And in order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”
But the fact is we haven’t learned — or haven’t acted on — the lessons we must heed if we’re going to build a more just, sustainable economy that works for the real economy rather than the Wall Street. The IPS report focuses on the twenty banks that have received the most bailout money from the federal government and shows that the banks and bankers are still acting and being rewarded as if they are Masters of the universe — abetted by a government that is failing to take on the status quo.
Sure, some steps have been taken to rein in compensation for TARP recipients — but they are timid ones. And IPS’s valuable report makes clear, “Lobbying armies from corporate and financial trade associations are energetically doing battle behind the scenes to keep even modest changes in pay rules off the legislative table.”
As a result historic inequality in pay is still prevalent and the neo-Gilded Age tycoons are raking it in. According to the report, a generation ago top execs rarely earned more than thirty to forty times the pay of the average American worker. But now top execs make an average of 319 times more than the typical worker. For the top twenty financial industry execs the divide is even greater — 436 times more than the average worker in 2008. In the past three years, the top five execs at the twenty US financial firms receiving the most Bailout Bucks took home pay packages worth a staggering $3.2 billion — an average of $32 million each. In 2008 those cats averaged nearly $14 million each–even though their twenty firms laid off more than 160,000 people since January of that year.
While a new and smart economic populism has fueled plenty of talk about compensation reform, good proposals haven’t been seized. Senators Bernie Sanders and Claire McCaskill tried to cap compensation for employees of bailed-out firms so that it wouldn’t exceed that of the President of the US, $400,000. The amendment was passed but then stripped in conference committee. In April, Progressive Caucus member and Chief Deputy Whip Jan Schakowsky introduced the Patriot Corporations Act to extend tax breaks and contracting preferences to companies that meet certain benchmarks, including not compensating any executive at more than 100 times the income of the company’s lowest-paid worker. That bill has been referred to committee. Hedge fund managers are still only paying 15 percent capital gains rate on the profit share they get for managing investment funds rather than the 35 percent income tax they should pay. And unlimited amounts of executive compensation are still shielded in deferred accounts–at an annual cost of $80.6 billion to taxpayers–in contrast to the limits placed on income deferred by normal taxpayers via 401(k) plans.
There is no shortage of opportunities to curb this unjust and unproductive growth in unequal pay. As IPS senior scholar and Nation contributor Chuck Collins put it, “Public officials in Congress and the White House hold the pin that could pop the executive pay bubble. They have so far failed to use it.” It’s time to use it.
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