For Immediate Release

Organization Profile: 

Sarah Anderson, or 202 299 4531

Republicans Issue Extremely Weak Bailout CEO Pay Plan

Emergency assistance should be tied to a cap on executive compensation above 50 times median worker pay.

WASHINGTON - There is growing consensus on the need for executive compensation restrictions on corporations that receive emergency coronavirus crisis assistance. The question is how best to structure these restrictions to most effectively prevent taxpayer dollars from padding the pockets of executives instead of mitigating a national economic crisis. 

Republican ban on pay raises is extremely weak

The March 19 Republican plan includes pathetically weak restrictions on executive compensation at airlines and other distressed companies that receive emergency financial assistance. 

The plan merely bans pay raises for two years for executives who earned more than $425,000 in 2019. In other words, if a CEO made $10 million in 2019, he or she could earn $10 million in 2020 and 2021. Golden parachute payments for these executives would be limited to twice the value of their 2019 compensation. If an executive made $424,999 in 2019, he or she would face no pay limits whatsoever. 

“Saying you're going to limit CEO pay at bailed-out corporations and then merely proposing to freeze that pay at pre-virus levels — the trick the Trump White House is trying to pull off — is like is like chasing burglars out of your house and then calling them an Uber for their getaway,” said Institute for Policy Studies executive pay expert Sarah Anderson.

The Republican plan would do nothing to prevent massive CEO windfalls through their equity-based pay during a taxpayer-funded economic recovery. Say a CEO got a stock grant worth $9 million in 2019. To match that value in 2020, when share prices are very low, the firm would have to award many more shares, which could easily balloon in value in a recovery.

Exec comp should be capped at a level that prevents taxpayer subsidies for excessive pay

Two options: 

1. Restrict total executive compensation to no more than 50 times median worker pay

“Linking CEO pay to a multiple of worker pay would prevent taxpayer subsidies from pumping up executive pay and, at the same time, create an incentive to narrow internal pay divides by lifting up the bottom of the wage scale,” Anderson noted.


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This pay ratio limit should accompany other proposed pro-worker conditions, such as banning layoffs, setting a $15 per hour wage minimum, requiring worker representation on boards, and banning anti-union activity.

As explained in more detail in this IPS Policy Brief, in 2018, the CEOs of the five largest U.S. airlines averaged nearly $10 million in total compensation. The ratio between CEO and median employee pay at these airlines ranged from 80 to 1 at Alaska Air to 195 to 1 at American. If the bailout law restricted CEO pay to no more than 50 times median worker pay, and if these five airlines kept median worker pay at current levels, their CEOs could earn $2.7 million to $4.1 million and still stay below this 50:1 ratio threshold.

2. Cap total executive compensation at a fixed amount

In 2009, the Senate approved an amendment that would have capped total pay for all employees of all bailout companies at no more than the salary of the U.S. President ($400,000). This sent a strong signal that bailout execs were essentially working for taxpayers, who should not have to subsidize excessive compensation. The measure, championed by Senator John McCain, was not included in the final bailout legislation.

Proposed bonus bans could be circumvented

Some lawmakers have proposed a ban on executive bonuses, starting immediately and extending for a few years after the bailout. This raises potential enforcement concerns:

1. Annual cash bonuses make up a small share of total executive compensation packages at the largest corporations. Executives are unlikely to meet criteria for long-term incentive awards in the near future, given low stock prices.

2. Corporations could circumvent this restriction by shifting compensation into other forms, such as salary, pensions, or long-term stock options or restricted stock awards (as President Obama’s “Pay Czar” encouraged mega-bailout firms to do). As noted above, equity-based pay could turn into massive windfalls down the road as executives cash in on a taxpayer-funded economic recovery. Large stock-based awards made at a moment when share values are very low could balloon with even a small uptick in the market.

Government must have authority to force renegotiation of compensation contracts

Obama Pay Czar Kenneth Feinberg had limited impact on executive pay at bailout firms after the 2008 crash. One reason: the bailout legislation limited his power over compensation contracts signed before February 11, 2009. This time around, legislators should require bailout recipients to renegotiate employment contracts to meet rigorous bailout restrictions.


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Institute for Policy Studies turns Ideas into Action for Peace, Justice and the Environment. We strengthen social movements with independent research, visionary thinking, and links to the grassroots, scholars and elected officials. I.F. Stone once called IPS "the think tank for the rest of us." Since 1963, we have empowered people to build healthy and democratic societies in communities, the US, and the world. Click here to learn more, or read the latest below.

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