America we need to talk

In the cult classic Soylent Green, a giant corporation runs the Earth and it turns out that the food rations they distribute to everyone are made out of the remains of mass-euthanized humans. I don’t think that’s what Mitt Romney meant, but who knows?

Now, America, multinational corporations are not the root of all evil. After all, I am composing this book on a computer created by a multinational corporation, and transmitting it to Seven Stories Press through a high-speed Internet connection provided by one of the biggest cable corporations in the country. No matter how much I or Seven Stories do to promote this book to independent bookstores,^a the reality is that most copies of this book will be sold online though enormous corporations and many will be read on electronic devices produced by other humongous corporations. Big bank credit cards will be used to purchase this book, and people may drive to see me speak about it in cars made by yet other corporations, using gas produced by yet more corporations.

Most of the food I eat (other than farmers market produce) comes from corporations, and I am pretty fond of eating. Ditto for most of the clothes I wear. If I need to fly anywhere, I take a plane operated by a big corporation. I brushed my teeth this morning using a toothbrush and toothpaste made by mammoth corporations, too.

Plus, all corporations create jobs (although not as many as they should) and most pay taxes (although not as much as they should).

The fact is that we are all heavily dependent on corporations, usually giant ones. Let’s make peace with that basic reality. So, if we have no choice but to live with them, let’s make corporations as good (or at least as harmless) as possible.

While I don’t agree with Mitt Romney that corporations are people, they are certainly run and (mostly) staffed by human beings, so we can first try to appeal to their leaders as people.

The problem is that corporate leaders are mostly isolated from the public at large, plus corporate media and corporate executives are so intertwined socially and economically that they spend much of their time telling each other how wonderful and deserving they are. For instance, Bloomberg Markets rated eight CEOs as “underpaid” (yes, you read that right) when their salaries ranged from $4 million to $9.3 million per year.²⁰ ^b If any of you readers happen to be on the board of a behemoth corporation and you want to “underpay” me by that much, please contact me immediately and I’ll be on the first plane to your tax-free corporate headquarters in Turks and Caicos.

Given all the media and societal coddling they get, it’s no wonder that CEO salaries, often set by themselves in collusion with their hand picked boards of directors, are so outrageously out of sync with the salaries of their employees.

We should use any means necessary—including letter-writing campaigns, consumer boycotts, shareholder activism, and plain old moral persuasion—to try to get CEOs to lessen the vast and growing divide between themselves and their employees.

But let’s assume, for a moment, that not every corporate executive decides to increase their workers’ salaries just because it’s the right thing to do. That’s when we need government to step in—and be the referee in this lopsided game—and provide both points and penalties to the corporation’s actions to ensure that employees are adequately rewarded for their hard work.

In 2015, a State Senate committee in California passed a bill that would cut the state taxes for companies that can demonstrate lower ratios between their chief executives’ pay and the salaries of their median workers. At the same time, the bill would raise taxes on companies with vast gaps between chief executive and median worker pay. As columnist Harold Meyerson explained, “The bill doesn’t compel CEOs and their corporate boards to either raise their employees’ wages or cut their own. It merely presents them with a choice. Those who overpay themselves and underpay their employees can continue to do so but thereby subject their company to higher taxes. Or they can diminish the discrepancy in compensation and thereby lower their company’s taxes. . . . Once you get past the ranks of CEOs themselves, it’s hard to find defenders of this pay gap. A [national poll] found that 66 percent of Americans—including even 58 percent of Republicans—thought that CEO pay was too high.”²¹ Robert Reich handily dispelled objections to the bill:

What about CEOs gaming the system? Can’t they simply eliminate low-paying jobs by subcontracting them to another company—thereby avoiding large pay disparities while keeping their own compensation in the stratosphere? . . .

No. The proposed law controls for that. Corporations that begin subcontracting more of their low-paying jobs will have to pay a higher tax . . .

For the last thirty years, almost all the incentives operating on companies have been to lower the pay of their workers while increasing the pay of their CEOs and other top executives. It’s about time some incentives were applied in the other direction.²²

Unsurprisingly, after the bill passed out of committee, business interests killed it. But it makes so much sense that such legislation should be fully enacted in California, and in every state nationwide. I’d even argue that federal legislation would make an even bigger impact.

If I had a magic wand, I’d go even further than that: I’d change the tax codes and shareholder governance laws to encourage companies to limit top executive salaries to no more than 100 times the salary of their lowest-paid employee. (For example, if an executive wanted to earn $2 million annually, their lowest-paid workers could earn no less than $20,000 annually.) That’s probably politically unattainable at this point, so the least we could do is to provide incentives for change by passing laws such as the one proposed in California.

In addition to the soaring gaps between executives and their employees, another pernicious trend has emerged: that of a US-based multinational corporation merging with a foreign counterpart, with the intent to pay taxes at the other country’s lower rate. It’s called an inversion, and pharmaceutical giant Pfizer has tried to use this loophole to move—at least on paper—to Ireland, to reduce its effective tax rate from 26 percent to 17 percent. Such inversions will deprive the US government of an estimated $33.6 billion over the next decade.²³ The Obama administration took some initial steps to make inversions more difficult, but the next president and Congress will need to team up to change tax laws to prevent them altogether.

Some corporate leaders have even argued that their shareholders could sue them if they ever did give a higher priority to paying workers more or protecting the environment than making as big a profit as possible for their shareholders. I think the chances of shareholders filing, no less winning, such lawsuits are extraordinarily slim. But let’s remove this excuse altogether by encouraging the federal government and states to change corporate governance laws to clarify that the public interest should take preference over the companies’ profit, or at the very least limit lawsuits resulting from actions taken to reduce inequality.

The best way to increase corporate profits while boosting the greater good is for companies to do more to embrace employee profit-sharing and/or employee ownership.^c In the 2016 campaign, Hillary Clinton wisely proposed providing tax credits for companies that adopt profit-sharing for their workers, saying, “Profit-sharing that gives everyone a stake in the company’s success can boost productivity and put money directly into employees’ pockets.” Professors Richard Freeman, Joseph Blasi, and Douglas Kruse of Harvard and Rutgers have found “strong evidence” that profit-sharing has “meaningful impacts on workers’ wealth” because “workers with profit-sharing or employee stock ownership are higher paid and have more benefits than other workers.”²⁴

In April 2016, Chobani (whose “Greek” yogurt is actually Turkish) gave each of its 2,000 employees shares in the company, up to 10 percent of its total value. Beyond that, as USA Today reported that

the two most prominent ways to give workers significant stakes—employee stock ownership plans (ESOPs) and worker cooperatives—go quite a bit further [than what Chobani did], handing as much [as] 100% of a company to its employees. An ESOP, which is far more common, sets up a retirement trust for all full-time employees and contributes shares annually. On average, the trusts are granted 30% to 50% ownership, but four in 10 ESOPs own, or eventually will, 100% of the companies. . . . Although employees must wait until retirement age to draw the funds, ESOPs create far more wealth than 401(k) plans, with participants accumulating about three times the assets of employees in comparable companies. . . .²⁵

Employee profit-sharing is exactly the kind of “win-win” Stephen Covey and other business strategy gurus told us to achieve. Turning workers into productive co-owners is a much smarter move for corporations than turning them into liquid food.

^a Dear reader: please, please, please shop as much as you can at brick and mortar bookstores, especially ones that carry fine Seven Stories Press titles!

^b One of those on the “underpaid” CEOs list was William Rogers, who earned $8.5 million in one year to run SunTrust Banks, based in Atlanta, Georgia, where the median family income is $34,770 and starting Atlanta police officers earn $34,726 annually, equaling 1/224th of what Rogers earns. I am pretty sure I have a different definition than Bloomberg Markets of the word “underpaid.”

^c Here are some deliriously happy employees, ecstatic that they are sharing in their company’s profits. Actually not—this is just a stock photo of random people—but you get the idea.