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Control CEO pay by taxing the very rich

Marketplace Staff Mar 21, 2007

KAI RYSSDAL: Starbucks had its annual meeting today up in Seattle. Free coffee for all probably. Sales are up and profits are rising. Chief executive Jim Donald made just over 16 million dollars last year. That’s a 31 percent bump over 2005. About double the rise in the company’s share price.

This has been a big year for shareholder comments on CEO pay. Investors at more than 50 companies want to have a say in how much the boss makes. And the House is working on some legislation along those lines. But Marketplace commentator Robert Reich thinks they’re missing the real issue.

ROBERT REICH: Depending on shareholders to reign in CEO pay is like relying on gamblers to rein in the owners of Las Vegas casinos. Shareholders don’t care about CEO pay. All they care about is that their shares go up.

They might be concerned if the giant pay packages prevented their sharesfrom rising, but that’s not been the case.

Between 1980 and 2003, while CEO pay at America’s 500 largestcompanies rose six-fold, adjusted for inflation, the average value ofthose companies also rose by a factor of six.

But while shareholder returns have kept up with CEO pay, median wageshave not.

In 1980, the CEO of a major company took home about 40 times what themedian worker earned. Now, it’s close to 300 times.

This explosion is just one aspect of the increasing concentration of thenation’s income and wealth in fewer and fewer hands.

The personal wealth of billionaire traders, hedge fund managers and CEOsis growing so fast that even they don’t know what to do with it.

The New York Times calculates that Larry Ellison, founder of Oracle, would have to spend $183,000 an hour just to avoid increasing his wealth. And the Senate still can’t decide whether to raise the minimum wage to $7.25 an hour?

Not since the era of the robber barons of the late 19th hasincome and wealth been so concentrated as it is in 21st centuryAmerica.

This threatens our democracy, as the wealthy bankroll politicians who,for example, keep the marginal tax rate on them lower than it’s been in70 years – even though the national debt is rising as is the cost ofkeeping America secure, and our schools and health care systems arefalling apart.

The answer is not for Congress to give shareholders more say over CEOpay. The real answer is to enact a sharply higher marginal taxrate on yearly incomes of everyone above, say, a mere million.

RYSSDAL: Robert Reich is a professor of public policy at the University of California Berkeley. He used to be Labor Secretary for President Bill Clinton.

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