Congressional Democrats Push Aggressive Strategy to Link Wage Increases to Executive Pay

January 16, 2015

During the first day of the 114th Congress, House Democrats offered a procedural motion that would block senior executive compensation deductions in excess of $1 million unless a company provides average pay increases to employees that meet or exceed average increases in inflation and productivity growth.  The vote failed largely along party lines—168 to 243—with four Democrats joining all Republicans in opposing the motion.  The CEO/Employee Pay Fairness Act, which was the basis for the motion, will soon be reintroduced by Rep. Chris Van Hollen (D-MD), and its populist message of linking tax deductions to wage increases is likely to be a recurring theme for Democrats leading up to the 2016 presidential election.  Rather than focus on just providing a minimum wage increase, the bill provides broad increases for all employees making less than $115,000 annually.  According to Rep. Van Hollen, "We have a simple proposition… corporations should not be able to deduct the bonuses and compensation for their CEOs and other executives over $1 million unless they're giving their employees a fair shake… So we say… pay yourselves what you want, but if you want the taxpayers to allow you to deduct your bonuses and performance pay, for goodness' sakes, you better be giving your employees a fair shake."  With Republicans firmly in control of the House, Van Hollen admits that the bill is not likely to make significant progress in the next two years, though it could come into play if the Republicans try to move a tax reform measure.  Meanwhile, as discussed in a Center On Executive Compensation policy brief, the bill is highly impractical, given the difficulties of calculating productivity growth in a way that could be meaningfully tied to compensation.  Companies would have to certify to the government that they have increased pay for non-highly paid employees in order to continue taking deductions for senior executives under section 162(m) of the Internal Revenue Code.