President Clinton’s attempts to rein in corporate pay actually made things worse. In 1993, he signed a bill capping at $1 million the salaries corporations could deduct as business expenses.
Watered-down in Congress, the bill exempted bonuses paid in the form of stock options provided they were tied to performance in some vague way. How vague? Well, in the past five years Coca-Cola corporate chief Muhtar Kent has paid himself $95 million while consistently underperforming on his own benchmarks. (Last week, Coke made news when its board rubber-stamped an audacious compensation package that would transfer some $13 billion of Coke’s wealth from shareholders to top managers.)
It turns out that Congress and the president underestimated corporate executives’ resourcefulness—and their greed. Almost immediately, $1 million became the new floor, not the new ceiling for execs with high opinions of themselves, which turned out to be most of them. Worse, by allowing executives to award themselves huge stock options based loosely on performance, Congress created a perverse incentive for CEOs to gussie up their books by firing workers en masse, and paying themselves millions of dollars for doing so. Congress’ and the president’s good intentions were directly used against them—and against America’s workers.
Free market types, which is how I generally think of myself, might respond: So what, it’s their company, and if they run it into the ground by their own greed, competitors will arise who do it better. Perhaps, but five years of stagnant job growth has put this faith to the test. More than any one person, Larry Ellison epitomizes the hazards of laissez faire capitalism. Oracle’s CEO has paid himself $175 million over the last two years. Where does that kind of money come from? Well, a lot of it from taxpayers.