Beyond the Paycheck: Could Curtailing Executive Overcompensation Also Curtail Bad Boss Behaviors™? (H.R.6191)

Curtailing Executive Overcompensation (H.R.6191) image is a tug-of-war between a an older white male in a business suit and his team versus another group, in front of the white house. In between the team teams is a giant check.

In the corporate world, where the gap between the haves and have-nots is sometimes as stark as the skyscrapers that house them, H.R.6191 emerges as a potential paradigm flip. This recently introduced bill, officially known as the Curtailing Executive Overcompensation bill, targets the widening chasm between CEO and worker pay. The data backing this move is telling. Since 1978, CEO pay has soared by over 1209%, drastically outpacing the growth of average worker wages. In 2022, this disparity manifested in CEOs earning 308 times more than the median worker.

Bad Boss Behaviors™ encapsulates a range of unethical and self-serving actions at the corporate helm. These behaviors can be fueled by disproportionately high compensation. Examples include prioritizing personal perks over employee welfare, making decisions that harm long-term sustainability for quick wins, and ethical lapses. H.R.6191 may address these issues by capping executive pay in a way that aims to realign the incentives of corporate leaders with the wellbeing of their companies and employees.

A line graph shows that around 1990 CEO pay skyrocketed to 300x while corporate profits and typical worker pays saw only moderate gains.

When it comes to inhibiting Bad Boss Behaviors™ though, does this bill fit the bill?

What H.R.6191 Does

This bill is more than just a financial cap; it could be perceived as an attempt to redefine the motivation driving corporate executives. Here’s how it could improve leadership behaviors:

  • Realigning Incentives: By capping CEO pay, H.R.6191 aims to diminish the allure of prioritizing short-term personal gains over long-term company health. When quick wins don’t have a massive impact on executive compensation, leaders are more likely to consider long-term, more sustainable, investments.
  • Curbing Risky Decisions: Excessive compensation can sometimes lead to risky business moves for quick financial wins. The bill implies a pay cap should reduce this temptation, fostering a more stable and ethical corporate environment.

Opponents of  compensation caps suggest they might bring unintended consequences. For instance:

  • Demotivation Risk: There’s a concern that limiting financial rewards could dampen the drive for innovation and exceptional performance.
  • Transparency Risk: A direct pay cap or taxation might increase indirect forms of remuneration, such as benefits or perks, complicating transparency.

With a lot of strong opinions on both sides of the issue, what examples do we have to inform us the potential results?

Precedents for Curtailing Executive Compensation

We have examples from the (relatively) recent past that may tell us what to expect:

  • Gravity Payments: In 2015, Gravity Payments CEO slashed his own salary to raise his employees’ minimum wage to $70,000. 6 Years later, the company had doubled in size and turnover was cut in half.
  • Whole Foods: This company capped its executive pay at 19 times the average employee’s salary for 20 years before Amazon bought it. Amazon paid $13.7 Billion for the company in 2017.
  • Japanese Companies: For decades, many Japanese companies like Toyota and Honda have maintained a lower CEO-to-worker pay ratio compared to their Western counterparts. However, in recent years the gap is closing, with a long way still to go, as they site executive expectations of salaries similar to Western corporations.

Most legislation is imperfect and requires revisions over time. H.R.6191 has its own challenges. However, the opposition seems to be refuted by examples in recent history. How might this legislation be adapted to increase its ability to block Bad Boss Behaviors™?

Additional Considerations

It’s clear H.R.6191 represents a significant step in fixing compensation governance. It also shows strong potential for reducing Bad Boss Behaviors™. Still, as we navigate this challenging terrain, several considerations emerge:

  • Scope Limitations: Should we consider focusing on publicly held corporations? This may appease opponents by enabling a path to greater flexibility in executive compensation, while establishing greater governance for the public.
  • Market, Industry, & Demographic Considerations: Different industries, geographies, and markets have varying norms and expectations. Perhaps tailoring the legislation to flex based on industry or marketplace benchmarks may help?
  • Incentivizing Ethical Leadership: Incentives for ethical, sustainable decision-making that aligns with long-term company health and employee welfare could be integrated into executive compensation models.

In conclusion, H.R.6191 opens the door to a potentially transformative era in corporate governance. By addressing the extreme disparities in executive compensation, it has the potential to also curb Bad Boss Behaviors™ while promoting a more equitable and ethical corporate culture. The success of this legislation, however, will hinge on its adaptability, its sensitivity to different industry dynamics, and its ability to evolve alongside the ever-changing landscape of the corporate world.

Whatever the final solution, it has the greatest potential if championed from a place of servant leadership. Kudos to the Bill’s authors, U.S. Senator Sheldon Whitehouse, Representative Barbara Lee, and Representative Alexandria Ocasio-Cortez for taking on this challenge. Keep serving!

If you or your employer could use some help with executive compensation or curtailing Bad Boss Behaviors™, please contact us. We’d love to help.

Sources for this article included:

  • https://www.whitehouse.senate.gov/imo/media/doc/mcg23623.pdf
  • https://chiefexecutive.net/fixing-executive-compensation-right-time-wrong-approach/
  • https://www.propublica.org/article/the-executive-pay-cap-that-backfired
  • https://hbr.org/1990/05/ceo-incentives-its-not-how-much-you-pay-but-how
  • https://www.cbsnews.com/news/dan-price-gravity-payments-ceo-70000-employee-minimum-wage/
  • https://www.japantimes.co.jp/business/2023/08/17/companies/japan-firms-performance-stock-options/
  • https://www.seattletimes.com/business/amazon/before-amazon-deal-whole-foods-also-stood-for-moderate-executive-pay/
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