Watchdog Blog

Morton Mintz: You Thought Golden Parachutes Were on the Way Out? Guess Again.

Posted at 3:05 pm, October 4th, 2008
Morton Mintz Mug

By ignoring a bill once endorsed by now-House Speaker Nancy Pelosi, Congress has blown a golden opportunity to do something truly creative and fair about excessive executive compensation. Instead, it passed a bill putting limitations on “golden parachutes” that not only can be dodged by executives, but can short-change shareholders as well, according to Graef Crystal, a long-time expert on executive pay.

The ignored bill would would have disallowed business tax deductions for executive compensation—including bonuses—in excess of 25 times the salary of the lowest-paid employee in the same organization. Thus taxpayers would no longer be forced to subsidize excessive pay while corporations would remain free to pay executives whatever they please.

The measure’s sponsor was Rep. Martin Olav Sabo (D-Minn.), who retired last year after 28 years in Congress. “It is difficult to believe one individual can be worth so much that he or she warrants a salary of 50 to 100 times other workers in the same business,” Sabo said in introducing the Income Disparities Act of 1991. “I have proposed 25 times because that is approximately the relationship of the President’s salary to the minimum wage.” Currently, the presidential salary is $400,000. That’s 32.8 times the $12,168 earned by a person working 40 hours every week at the minimum hourly wage of $5.85.

“While my proposal would not stop excessive salaries at the top, it would end indirect support of them through the corporate income tax structure,” Sabo continued. “It would make a clear statement that the public policy of this country does not support extreme distortions in the incomes people make, and it would reaffirm the fundamental dignity that the government affords to all working people, including those at the lower end of the income scale. The increases in income disparities of the last decade are clearly out of control and must be turned around.”

In 1995, after Republicans took control of the House, Sabo expanded his proposal–renamed the Income Equity Act–to increase the minimum wage for the first time since 1989.

“Business owners will be forced to take a long, hard look at how they compensate both those at the bottom and those the top of the income ladder,” Sabo said at the time. Indeed, a CEO would have an incentive to hike the pay of his lowest-paid employees in order to increase his own pay. Raises for the lowest-paid employees would also mean raises for those higher up the ladder.

The Income Equity Act had 30 co-sponsors, including Rep. Pelosi. Critically not among them, though, were two leading House Democrats: Barney Frank, now chairman of the Financial Services Committee, and Charles Rangel, now chairman of the Ways and Means Committee. The bill died in Ways and Means.

Today’s financial crisis has raised public support for limits on executive compensation to unprecedented heights. Will Speaker Pelosi be moved to revive the bill she co-sponsored in 1995? Will Congressmen Frank and Rangel be moved to get off the fence? Don’t bet on it.



One Response to “You Thought Golden Parachutes Were on the Way Out? Guess Again.”

  1. Lois Kester Jason says:

    I saw your article and wondered if you are the “Morty Mintz” that attended Erasmus Hall High School in Brooklyn, NY; on the track team and was a friend of my brother, Howard.

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