House Democrats Introduce Bill to Link Executive Pay Deductions to Increases in Employee Wages, Productivity

September 26, 2014

House Budget Committee Ranking Democrat Rep. Chris Van Hollen (D-MD) has introduced a bill to prevent companies from deducting CEO and senior executive compensation over $1 million unless they increase the average wages of employees earning less than $115,000 to reflect average annual national increases in productivity and the cost of living.  The CEO-Employee Pay Fairness Act (H.R. 5662) is part of the House Democratic Caucus's Middle Class Jumpstart campaign platform.  In introducing the measure, Van Hollen said:

Workers are more productive than ever and corporations are more profitable than ever, yet wages are barely keeping up with the cost of living.  And what's worse, our tax code subsidizes excessive CEO pay.  Big corporations shouldn't be getting tax breaks for CEO bonuses unless they also give their employees a raise.

Currently under Section 162(m) of the tax code, companies can only deduct compensation in excess of $1 million for the CEO and the other Named Executive Officers, other than the CFO, if it is "performance-based."  Rather than eliminate the performance-based exception, as other legislation has proposed, the Van Hollen bill would link the deduction to pay increases for certain employees.  The text of the bill was not yet available when this story was written, and it is unclear whether the limitation on deductions applies to the named executive officers or all employees.  It is also unclear how the government would certify that companies have provided the requisite wage increases, which will amount to roughly two percent a year for productivity, plus inflation, according to a summary.  In commenting on the bill, Washington Post Columnist Harold Meyerson noted that minimum-wage hikes, "while a lifeline for those in low-paying jobs, do nothing for the majority of workers, whose incomes have also been either stagnating or declining" and that the bill this may be the beginning of a progressive push by House Democrats.  "By backing Van Hollen's bill, the House Democratic Caucus announces that raising Americans' incomes is—at least provisionally—worth the risk of incurring Wall Street's wrath."