Some French lawmakers are pursing a goal that needs to be more widespread. They are seeking to cap pay for corporate executives at 20 times the earnings of a company’s lowest-paid employee. They were inspired in part by the outrage generated by the announcement that French car maker Stellants would compensate CEO Carlos Tavares $54 million in 2023, 365 times the average compensation of Stellantis employees.

The divergence between what the top people get and what the average worker gets has been diverging almost everywhere for decades. In the U.S., in 1965 the CEO-to-worker compensation ratio was about 20-to-1, exactly what the French lawmakers are suggesting. But in the last half century, American CEO compensation has risen over 1000 percent, almost double stock market growth and vastly greater than that of a typical worker’s compensation. The ratio is now 344, similar to that of Stellantis. In Canada the ratio is less: the top 100 highest-paid CEOs make only 243 times as much as the average employee.

The growing division, quite aside from an unfair distribution of the spoils, is more than a symbolic issue. It undermines the public good. As Richard Wilkinson and Kate Pickett so effectively illustrate in their book The Spirit Level, inequality leads to an unhealthy society. Extreme pay also helps concentrate economic and political power in the hands of a privileged few.

There is certainly no justification for raising the compensation of executives ten times faster than those of workers. Nor, to my knowledge, is there evidence that CEOs today are ten times better than those we had in 1965.

Some corporations do seem to be recognizing that executive pay has gotten out of hand. In France, for example, the tire maker Michelin recently announced it would guarantee all of its employees a “decent wage” wherever they were in the world, to ensure that none of its workers would have to struggle to make ends meet. As part of this initiative, Michelin CEO Florent Menegaux asked that his 2023 salary be capped at $1.6 million which, with performance shares, game him a total compensation of $5.6 million—a nice piece of change but a long way from Stellantis CEO’s bonanza of $54 million. Menegaux has said that “what makes a good corporation … is the level of social cohesion it achieves.”

However, there aren’t that many Menegauxs around. Left to corporate boards of directors, corporations will likely continue to reward their fellow plutocrats. If the pay ratios are to brought back into reasonable balance, legislation will be necessary. Fortunately a number of polices present themselves:

• Reinstate higher income tax rates at the very top, to incentivize lower CEO pay.
• Set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation.
• Submit executive pay to a shareholders’ vote.
• Legalize employees’ share of revenue or set limits on executives compensation relative to workers.
• Limit CEOs’ ability to collude with corporate boards.

Several bills have been proposed in the U.S. Congress to deal with the issue. For example the Curtailing Executive Overcompensation (CEO) Act. This would impose an excise tax on employers that have at least a 50 to 1 disparity between the income of CEOs and wages paid to their workers. The rate owed would be proportional to the size of a company’s pay ratio and the size of the CEO’s paycheck.

The Patriotic Corporations Act would grant preferential treatment in contracting to firms with pay ratios of 100 to 1 or less, as well as including neutrality in union organizing campaigns. 

Both Portland, Oregon and San Francisco have adopted surtaxes on companies operating in the cities that have CEO-worker pay rations of 100 to 1 or higher.

It’s time for our governments to start dipping into this toolkit. The health and stability of our country depends in no small measure on avoiding the inequality that leads to the sort of social decay we see in the U.S. And leads from there to the election of populist demagogues.