Dick Durbin has had dollars in his eyes lately, or, perhaps more accurately, in his sights. Last Friday he had an extended interview with Bill Moyers on his failed efforts to protect home owners. That failure led him to see the most important reform to be reining in the power of the financial industry. At the same time, he has been going after our gush up economy - the gushers of wealth pouring into the pockets of the richest Americans . . . wealth that brings them more power and more power to ensure that the money just keeps going in the same direction.
As Durbin said on the Senate floor:
Why is it in this country, in America, that we can find hundreds of billions of taxpayers' dollars from hard-working people all over the United States to come to the rescue of bad banking decisions, rotten investments, mortgages that were fraudulent on their face, but can't summon the political will to do something about 8 million families in America who are going to face foreclosure? That is where we are.
Durbin's solution was to allow home mortgages to be treated the same way other contracts are in bankruptcy. In bankruptcy, as we constantly hear in the case of the auto companies, the bankruptcy judge has enormous power to rewrite contracts . . . but not home mortgages anymore. Durbin wanted bankruptcy judges to be given back that power.
First, an excerpt from Durbin's interview with Moyers.
what I saw was the frustration, that here we are in a recession, brought on by these financial institutions, some very bad decisions that they'd made causing great pain and suffering for a lot of workers and businesses and homeowners across America. And yet, when you sit down and talk about some fundamental reform of these financial institutions, so that people have a fighting chance when it comes to their credit cards, so that folks facing mortgage foreclosure have a final chance to maybe save their homes, that basically the banks are going to have the last word. It's counterintuitive. The people who brought this crisis to us are the ones that are dictating policy.
I saw it when I called this amendment, an amendment which would have changed the bankruptcy code, would have allowed those facing foreclosure one last change to renegotiate their mortgage on their home and to stay in their home, under extraordinary, limited circumstances.
But the banking industry, the associations and groups, fought me all the way. And it was clear to me that even though the mortgage foreclosure crisis is getting progressively worse in this country, and is at the heart, I think, of our economic weakness, that the banks were unwilling to step up and really participate in finding a solution.
. . .
With the original mortgage, and I have to tell you that it is a little hard to swallow, when we're dealing with a banking industry that has entered into so many bad contracts, creating these rotten portfolios of mortgage securities. And then in desperation, turn to the taxpayers at large, who had to come in and bail them out with hundreds of billions of dollars. Their holy contracts that exploded in their faces really weren't that holy, when it came down to it. They were ready to take taxpayers' money to stay in business. But I offered this same amendment a year ago. At the time, the projection was two million homes in foreclosure in America. Moody's now projects eight million. That's one out of every six home mortgages in foreclosure. That means that there'll hardly be a block untouched in America, without a foreclosed home, which will affect the other people around them, and the value of their property.
Second, on May 7, Durbin introduced two new bills to rein the excessive pay being given corporate executives - the Excessive Pay Capped Deduction Act of 2009 (S. 1007) and the Excessive Pay Shareholder Approval Act (S. 1006).
The core of S1007 is this language:
1) IN GENERAL.—No deduction shall be allowed under this chapter for any excessive compensation for any employee of the taxpayer.
2) EXCESSIVE COMPENSATION.—For purposes of this subsection, the term ‘excessive compensation’ means, with respect to any employee, the amount by which the compensation for services performed by such employee during the taxable year exceeds the amount which is equal to 100 times the amount of the average compensation for services performed by all employees of the taxpayer during the taxable year.
In other words, a company loses its income tax deduction for any employee compensation that is defined as excessive.
The definition of excessive is pay that is any money paid to an employee that is more than 100 times the average compensation paid to all of the company's employees that year. In other words, if the average pay is $20,000 for that year, the company cannot deduct pay for any employee that is more than $2 million.
If you want to get a sense of just how much money is involved, I have summarized a recent survey of CFO and Board Member pay and perqs.
FYI, for 2008, the median hourly pay for all US workers is about $15.57 and the mean hourly is $20.32. These figures do not include benefits. In Durbin's speech, included below, you will see he has much higher figures because he includes benefits as well as pay.
I hope that the definition they choose for average is the median. You can see how big a difference that makes.
Second, it is important that they exclude the executive pay to keep it from skewing the outcome here. But one advantage of using median is to provide a more accurate picture of that workplace's pay without having to remove the executives.
Third, the bill sends a big message about what excessive is. In doing so, this bill creates interesting incentives for employers who want to continue to pay high wages. It will not be subsidized for those excessive amounts by the (underpaid) taxpayers. It may even create some incentives for pay raises for more regular employees. . . .
Naw! that probably is too much wishful thinking.
I am including the full text of Durbin's speech introducing the two bills:
Mr. President, Americans have every right to be outraged over the recent bonuses given to employees of the group within AIG that led to that company's collapse. American taxpayers have provided $185 billion—and counting—to save a firm that has been deemed “too interconnected to fail.”
It is unacceptable that millions of those taxpayer dollars have been handed over to some of the executives who caused this disaster in the first place. If there is a constitutional way to reclaim those bonuses, I support it.
But it is important to remember that executive compensation practices have been out of control for many years. While the wages and benefits of middle class workers have stagnated, CEO compensation has exploded.
According to the Economic Policy Institute's “State of Working America,” in 1965 U.S. CEOs at major companies made 24 times the pay of an average worker. By 2005, CEOs earned 262 times the pay of an average worker.
The comparison between CEOs and minimum wage workers is even starker. In 1965 U.S. CEOs at major companies made 51 times the pay of workers earning the minimum wage. By 2005, CEOs earned 821 times the pay of workers earning the minimum wage.
These comparisons are important not because they could be used to incite calls for class warfare, but because the American people deserve an honest accounting of the activities of the corporations that touch their lives in so many ways. Every American deserves an honest wage for honest work. And every American, from the top of the corporate ladder to the bottom, deserves to know whether they are being compensated fairly — whether they are sharing in the rewards of the company's work or whether their labors are mainly fueling ever more extravagant pay for the top executives.
We have lost the balance we once had in America. Executive pay has soared, while pay for many s has not even kept pace with their productivity increases. It's not surprising that there is widespread fury when CEOs get it wrong. After all, they have a hand in setting their own salaries.
But recently, the anger of the average American worker has boiled over because so many CEOs have gotten it so wrong. That outcome is not healthy for our economy, and it's not healthy for our society.
If companies want to pay their executives handsomely for excellent performance, they should be able to do that. They should be able to compete for top talent. But the shareholders should be looking over their shoulders as they adopt excessive pay structures, and the taxpayers shouldn't be subsidizing the resulting income disparities.
To restore some balance, the shareholders of a corporation should have to approve lucrative compensation packages. And, the companies shouldn't receive a tax deduction for handing out excessive pay.
That is why today I am introducing two bills—the Excessive Pay Shareholder Approval Act S. 1006, and the Excessive Pay Capped Deduction Act, S. 1007.
The Excessive Pay Shareholder Approval Act would require a supermajority—60 percent—vote of the shareholders to approve a compensation structure in which any employee receives more than 100 times more than the average employee of that company. Corporations could pay executives whatever they think is appropriate, but shareholders would have to OK packages that are 100 times as large as the average worker earns. This bill would require greater transparency in compensation and would encourage companies to think about how they pay their lower-paid workers, not just how they reward the people at the top.
Similarly, the Excessive Pay Capped Deduction Act would limit the normal tax deduction for compensation for executives to 100 times the compensation of the average worker at that company. Again, corporations could pay executives whatever they decide is appropriate, but they could not claim limitless tax benefits for doing so. This bill also would encourage companies to look at their entire compensation structure, and it would protect taxpayers.
Here is an example. If the average worker at a company earned, including wages, paid leave, supplemental pay, and retirement, the same amount as the average worker nationwide in December of 2008, that worker would have earned around $50,000. At that company, a supermajority of shareholders would be required to approve pay packages larger than $5 million and that company could not deduct compensation in excess of $5 million.
How many companies would this affect? According to the research firm The Corporate Library, in 2007 the median compensation for CEOs of S&P 500 companies was $8.8 million. Therefore, if these companies are only paying average wages across the rest of the company, many of them would be affected by this legislation. Many would not.
From our founding, this country has benefitted from a sense of unity and balance that has brought Americans together in good times and in bad. If the rewards handed out by our leading corporations flow excessively to the very wealthy while leaving middle-class families behind, we risk losing that sense of common purpose. The uproar over AIG bonuses showed very clearly the corrosive effects of compensation packages that appear to be disconnected from the reality that the average family faces day in and day out.
The two bills I am introducing today would help to restore some of the balance we have lost, by ensuring greater accountability for the disparities in compensation for corporate leaders and the average workers they employ, and by protecting taxpayers when a company's compensation packages reach extreme levels.
I urge my colleagues to support both bills.
The text S1007 is not yet up on Thomas, but here is the likely link when it is. The text of S1006 and information is here.
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