SACRAMENTO -- Noting that America's middle class has lost its distinction as the wealthiest in the world, two Bay Area lawmakers say they're attacking income inequality with legislation that would link a company's tax rate to the gap between executive pay and average employee wages.
It would be the first law of its kind in the nation at a time when the growing plight of the middle class is becoming a major issue in this year's midterm elections.
Three decades ago, chief executives made a little more than 40 times as much money as an average worker. Now, CEOs of elite companies like Silicon Valley's eBay and Oracle earn average compensation that's more than 350 times greater than what middle-class workers earn.
Wells Fargo CEO John Strumpf made $22.9 million in 2012 while his employees made an average of $48,317, meaning his salary is almost 500 times greater, according to data collected by Bloomberg News. Executives of Dublin-based Ross Stores and oil and gas company Chevron, headquartered in San Ramon, also made hundreds of times more than their workers that year.
The biggest pay gap in the Bay Area was at software giant Oracle, where CEO Larry Ellison made 1,287 times the salary of the average worker.
Under SB1372, if the CEO of a publicly traded company doing business in California makes more than 100 times the pay of an average employee, that company's tax rate will go up from 8.8 percent to as high as 13 percent. Companies with relatively little disparity will get a tax break, according to the bill, sponsored by Sens. Mark DeSaulnier, D-Concord, and Loni Hancock, D-Berkeley,
"This is not only unjust, but it's bad for the economy," Robert Reich, a former U.S. labor secretary who now teaches public policy at UC Berkeley, said of the pay gap before speaking to the Senate Governance and Finance Committee on Thursday. "There's no purchasing power left in the middle class to buy what the economy produces. That's why we're seeing the slowest economic recovery in years."
Reich, who supports the bill, cautioned that the California Chamber of Commerce would label the bill a "job killer." And sure enough, representatives from the chamber, California Taxpayers Association and California Retailers Association all spoke against the bill.
"This bill would launch our corporate tax rate into the stratosphere," said Gina Rodriguez, vice president for state tax policy at the taxpayers group. "California is already the third worst state for business climate in the nation and this would add to our reputation as an anti-business state."
The committee advanced the bill on a party-line 5-2 vote. Chairwoman Lois Wolk, D-Davis, applauded her Democratic colleagues for trying to address the pay-gap problem.
Vice Chairman Steve Knight, R-Antelope Valley, said the plan is "not a bad idea" and agreed executive compensation is "out of whack" with middle-class salaries, but he said it's not the government's responsibility to correct the problem.
He also questioned whether the money saved by decreasing a CEO's pay would go back to the workers -- something the bill does not explicitly require.
The chances the measure will make it to Gov. Jerry Brown's desk this year are slim because it would require support from two-thirds of the lawmakers in each house of the Legislature and Senate Democrats lost their supermajority when they suspended three lawmakers ensnared in high-profile corruption cases.
Wells Fargo spokeswoman Holly Rockwood declined to comment specifically on the legislation, but she stressed the bank "pays for performance that is aligned with customer and shareholder objectives" and offers an array of benefits and career-development opportunities to its employees, which include more than 45,000 in California.
Hancock said the incentives for businesses to lower executive pay will fluctuate based on the size of the gap, but creating that incentive is vital. When fast-food and retail companies don't pay their workers enough to support their families, she said, taxpayers end up footing the bill for the public-assistance programs they need.
"This bill represents a doable, practical solution that creates incentives for responsible corporate behavior," Hancock said. "Runaway CEO pay at the expense of the working people is not right."