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Should CEO pay restrictions spread to all corporations?

One analyst likens huge compensation packages as 'a form of robbery.'

By David R. Francis / March 9, 2009

When an armed man walks into a bank branch and demands money from a teller, he's likely to go to jail if he's caught. Criminologist David Friedrichs maintains some bank executives are equally guilty of stealing when they get exorbitant pay packages.

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"It's a form of robbery," says Professor Friedrichs, who teaches criminal law at Scranton University in Pennsylvania. It shouldn't be dismissed as "just greedy."

The financial crisis has generated a huge amount of anger around the nation at the mismanagement and excesses of some big bankers – and to a lesser extent at highly compensated corporate executives in other industries as well.

"People are really ticked off," says Sarah Anderson, long a proponent at the Institute for Policy Studies in Washington of legal measures aimed at restraining CEO pay levels. Asked lately to join some call-in radio talk shows dealing with the financial crisis, she notes: "It's unnerving how angry people are with the bankers."

It's unclear whether public displeasure is great enough for Congress to put a complete brake on executive pay beyond measures already imposed on the financial institutions bailed out by Uncle Sam.

But Sen. Carl Levin (D) of Michigan apparently is planning to reintroduce a 2007 bill that would end tax favors for a major form of executive compensation: stock options. And Rep. Barbara Lee (D) of California last month reintroduced a bill that would deny corporations the ability to deduct as a business expense any payment to an executive that exceeds 25 times the lowest paid worker's wage in the company. If that worker received the minimum wage, the deductible compensation for an executive would be $304,200. The company could pay him or her more, but not receive a tax break for the excess.

In 2007, CEOs of major corporations were paid on average 344 times the average worker's pay.

Ms. Anderson advocates that 25:1 ratio on tax deductibility apply to all corporations, including any company that seeks a government procurement contract or tax break. This would generate more than $5 billion in extra revenues for Washington.

One factor probably weighing against congressional action is the political efforts of the nation's companies and their wealthy executives. From 1998 to 2008, the financial sector alone spent at least $1.7 billion on campaign contributions and another $3.4 billion on lobbying, according to a study released last week by Essential Information, a nonprofit group founded by Ralph Nader.