Congress jumps in on excessive executive pay

News Brief

By Cydney Posner

In what is surely the first of many such bills to be offered up in Congress, Senator Dick Durbin has just introduced S1006, the Excessive Pay Shareholder Approval Act. The bill would prohibit a public company from paying annual compensation to an employee in an amount that exceeds 100 times the average of the compensation paid to all employees of that company, without a 60% supermajority vote of the shareholders within the preceding 18 months. The bill would also mandate disclosure of internal pay equity information, requiring that the proxy statement related to this vote include;

  • the amount of compensation paid to the lowest paid employee of the issuer;
  • the amount of compensation paid to the highest paid employee of the issuer;
  • the average amount of compensation paid to all employees of the issuer;
  • the number of employees of the issuer who are paid more than 100 times the average amount of compensation for all employees of the issuer; and
  • the total amount of compensation paid to employees who are paid more than 100 times the average amount of compensation for all employees of the issuer.

In introducing the bill, Senator Durbin cited statistics from the Economic Policy Institute indicating that, in 1965, U.S. CEOs at major companies made 24 times the pay of an average worker, while, by 2005, CEOs earned 262 times the pay of an average worker. (A report on The Today Show in early May showed the ratio of average CEO pay at public companies relative to average employee pay at 400:1 in the U.S., while in Great Britain, the ratio is 22:1; in Canada, 20:1; and in Japan, 11:1.)

In a companion piece of legislation, S1007, the Excessive Pay Capped Deduction Act of 2009, "excessive compensation" for any employee would not be tax deductible. The term "excessive compensation" means the amount by which the employee's compensation for services during the taxable year exceeds an amount equal to 100 times the amount of the average compensation for services performed by all employees of the company during the taxable year.

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