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'It is time to send a message': Bernie Sanders plan takes aim at CEO pay

This post has been updated with comment from the Heritage Foundation.

Presidential candidate Bernie Sanders is going after CEOs with huge pay relative to their company’s regular workers.

The Vermont senator unveiled a new plan on Monday that proposes to raise taxes on companies with “exorbitant pay gaps” between their executives and workers.

“The American people are sick and tired of corporate CEOs who now make 300 times more than their average employees, while they give themselves huge bonuses and cut back on the healthcare and pension benefits of their employees,” Sanders said in a statement. “At a time of massive income and wealth inequality, the American people are demanding that large, profitable corporations pay their fair share of taxes. It is time to send a message to corporate America: If you do not end your greed and corruption, we will end it for you.”

Democratic presidential candidate Sen. Bernie Sanders (I-VT) speaks at a rally in support of the Chicago Teachers Union ahead of an upcoming potential strike on September 24, 2019 in Chicago. (Photo: Scott Heins/Getty Images)

CEO pay has risen considerably over last few decades

CEO pay has increased by 1,007% over the past three decades while workers have seen their pay rise by about 12%, according to one recent report. CEOs today on average make 278 times more than their workers. In 1965 a CEO was only making 20 times more.

Sanders’ plan would target this pay gap and impose taxes on companies which exceed the ratio of CEO to median worker pay of 50:1. If the CEO isn’t the highest-paid employee, the ratio will be based on whomever that person is in the company.

Tax penalties would begin at 0.5% for companies that have between 50 to 100 times more and then escalate up to those who make 500 times worker pay (which would be 5%). The tax would apply to both private and public companies that have an annual revenue of more than $100 million.

“The US has already tried taxing CEO pay and it hasn’t worked,” Adam Michel, a senior policy analyst at the conservative Heritage Foundation, told Yahoo Finance in a statement. “Businesses pay their employees what the market demands and levying new taxes on high pay will just make US businesses less able to compete globally, expand their workforces, or raise wages of rank and file workers. Policies that are actually designed to help low-income Americans should focus on removing barriers to success and increasing business investment.”

The Sanders press release argued that if this plan were in place last year, Walmart would’ve paid around $794 million more in taxes. JPMorgan Chase (JPM) would’ve paid nearly $992 million more. This CEO tax would raise an estimated $150 billion “over the next decade,” the Sanders team statement estimates and would — along with the wealth tax — provide funding towards Sanders’ plan to eliminate medical debt.

(Source: EPI)

The highest-paid CEOs relative to workers

A separate report by the Institute for Policy Studies — which Sanders referenced in his statement — singled out those with the largest pay gaps.

Tesla (TSLA) has the biggest CEO-to-worker pay gap at 40,668 times. Other companies with major pay disparities include Abercrombie & Fitch (ANF), Gap (GPS), Mattel (MAT), Chipotle (CMG), and McDonald’s (MCD).

Outgoing Disney (DIS) CEO Bob Iger earns 1,424 times more than the median worker at his company.

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Although JC Penney (JCP) may be struggling financially, its CEO Jill Soltau is still earning quite a lot of money. She makes 1,294 times more money a year than her median worker.

Two other big companies, Walmart (WMT) and Starbucks (SBUX), also made the top 50 list. Their CEOs, Doug McMillon and Kevin Johnson, make 1,076 and 1,049 times more than the median workers at their respective companies.

“The low-wage retail sector does indeed have the most companies on the list of corporations with exceptionally large pay gaps,” the report noted. 14 retail companies have a pay gap of 1,000 to 1.

Hence, the Gap “has truly earned its name,” the report added, stating that the company “had the S&P 500’s widest pay ratio in 2018, with CEO Arthur Peck making $20.8 million, 3,566 times as much as the company’s median worker pay of $5,831.”

SpaceX owner and Tesla CEO Elon Musk gestures during a conversation at the E3 gaming convention in Los Angeles, California, U.S., June 13, 2019. (Photo: REUTERS/Mike Blake)

Public companies with a pay gap of less than 25:1

The report noted that there were some S&P500 companies that had a pay gap of less than 25 to 1, which they considered optimal.

They were TripAdvisor (TRIP) at 19:1, Berkshire Hathaway (BRK-ABRK-B) at 7:1, Copart (CPRT) at 6:1, and Twitter (TWTR) and Alphabet (GOOG) at 0:0.

“These five firms hardly rate as egalitarian outliers,” the report asserted. “The CEOs at the five — all company founders — only take nominal annual paychecks. Their real earnings come from the massive stashes of company stock they have accumulated over the years.”

Adriana and Aarthi are writers for Yahoo Finance. Follow them on Twitter @adrianambells and @aarthiswami.

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