[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PROMOTING ECONOMIC GROWTH:
A REVIEW OF PROPOSALS TO
STRENGTHEN THE RIGHTS AND
PROTECTIONS OF WORKERS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTOR PROTECTION,
ENTREPRENEURSHIP, AND CAPITAL MARKETS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MAY 15, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-24
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
___________
U.S. GOVERNMENT PUBLISHING OFFICE
37-926 PDF WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Investor Protection, Entrepreneurship,
and Capital Markets
CAROLYN B. MALONEY, New York, Chairwoman
BRAD SHERMAN, California BILL HUIZENGA, Michigan, Ranking
DAVID SCOTT, Georgia Member
JIM A. HIMES, Connecticut PETER T. KING, New York
BILL FOSTER, Illinois SEAN P. DUFFY, Wisconsin
GREGORY W. MEEKS, New York STEVE STIVERS, Ohio
JUAN VARGAS, California ANN WAGNER, Missouri
JOSH GOTTHEIMER. New Jersey FRENCH HILL, Arkansas
VICENTE GONZALEZ, Texas TOM EMMER, Minnesota
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
KATIE PORTER, California WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana, Vice
SEAN CASTEN, Illinois Ranking Member
ALEXANDRIA OCASIO-CORTEZ, New York
C O N T E N T S
----------
Page
Hearing held on:
May 15, 2019................................................. 1
Appendix:
May 15, 2019................................................. 43
WITNESSES
Wednesday, May 15, 2019
Clifford, Steven, author, and former CEO of King Broadcasting
Company........................................................ 5
Copland, James R., Senior Fellow, and Director, Legal Policy,
Manhattan Institute for Policy Research........................ 12
Corzo, Heather Slavkin, J.D., Director of Capital Markets Policy,
AFL-CIO; and Senior Fellow, Americans for Financial Reform
(AFR).......................................................... 7
Disney, Abigail E., Ph.D., President of Fork Films, and Chair and
Co-founder of Level Forward.................................... 9
Gilbert, Nili, Co-founder and Portfolio Manager, Matarin Capital
Management..................................................... 10
APPENDIX
Prepared statements:
Clifford, Steven............................................. 44
Copland, James R............................................. 65
Corzo, Heather Slavkin....................................... 77
Disney, Abigail E............................................ 92
Gilbert, Nili................................................ 99
Additional Material Submitted for the Record
Maloney, Hon. Carolyn:
Written statement of the Council of Institutional Investors.. 107
Written statement of Dr. Anthony Hesketh..................... 114
Paper entitled, ``Human Capital Factors in the Workplace,''
dated May 2019............................................. 148
Written statement of Public Citizen.......................... 152
Davidson, Hon. Warren:
Paper entitled, ``Hunting High and Low: The Decline of the
Small IPO and What to Do About it,'' dated April 2018...... 158
Garcia, Hon. Jesus ``Chuy'':
Paper entitled, ``Reward Work Not Wealth''................... 186
PROMOTING ECONOMIC GROWTH:
A REVIEW OF PROPOSALS TO
STRENGTHEN THE RIGHTS AND
PROTECTIONS OF WORKERS
----------
Wednesday, May 15, 2019
U.S. House of Representatives,
Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:01 a.m., in
room 2128, Rayburn House Office Building, Hon. Carolyn Maloney
[chairwoman of the subcommittee] presiding.
Members present: Representatives Maloney, Sherman, Scott,
Foster, Vargas, Gottheimer, Gonzalez, Porter, Axne, Casten,
Ocasio-Cortez; Duffy, Stivers, Wagner, Hill, Emmer, Mooney,
Davidson, and Hollingsworth,
Ex officio present: Representatives Waters and McHenry.
Also present: Representatives Garcia of Illinois and
Phillips.
Chairwoman Maloney. The Subcommittee on Investor
Protection, Entrepreneurship, and Capital Markets will come to
order. And without objection, the Chair is authorized to
declare a recess of the subcommittee at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of this subcommittee are
authorized to participate in today's hearing.
Today's hearing is entitled, ``Promoting Economic Growth: A
Review of Proposals to Strengthen the Rights and Protections of
Workers.''
I now recognize myself for 3 minutes to give an opening
statement.
We spend a lot of time in this subcommittee talking about
the relationship between companies and their investors. But the
relationship between companies and their employees is just as
important to the economy.
Public companies have hundreds of thousands of employees,
and almost all of the largest companies in the country are
public companies, so the policies they have for employees and
the wages they pay set the tone for the rest of the economy.
This hearing will examine four bills on public company
workers. Two of the bills we will be discussing today come from
Congresswoman Cindy Axne.
The first bill is the Outsourcing Accountability Act, which
would require companies to disclose in their annual report the
total number of employees they employ in each State and each
foreign country. The bill also requires companies to disclose
how those numbers have changed from the previous year, which is
critically important because it will allow investors and the
public to monitor which companies are sending U.S. jobs
overseas and also to see which companies are bringing jobs back
to the United States.
The second bill from Congresswoman Axne would require
companies to disclose much more information to investors about
their human capital management policies. Companies often say
that their employees are their most valuable asset. And if that
is true, then information about the makeup of the company's
workforce is of paramount importance to investors.
For example, investors need information about overall
workforce skills and capabilities in order to know whether the
company has the capacity to take on projects that require a
very specialized skill set.
Congresswoman Axne's bill would require companies to
disclose this kind of information, which is critically
important in today's modern economy.
Next, we have a bill that would require the SEC to conduct
a study on stock buybacks. I think this is an incredibly
important issue, and I certainly hope that this isn't the last
bill we take up on stock buybacks.
U.S. companies spent up to 60 percent of the tax cuts they
received in the Republican tax bill on stock buybacks. They
could have used that money to raise their workers' wages or to
invest in new equipment or in research and development. But
instead they used it to buy back their own stock, thereby
enriching their own executives.
The bill we are examining today would require the SEC to
study how buybacks can be misused to benefit executives and the
impact that buybacks have on employee wages.
Finally, we have a bill from Congressman Phillips which
would require companies to disclose how much of a pay raise it
is giving to executives every year and compare that with the
pay raise it gave to its median employees.
I look forward to hearing from all of our witnesses on
these important bills.
And with that, the Chair recognizes Mr. Hollingsworth for 4
minutes for an opening statement.
Mr. Hollingsworth. I am going to read Mr. Huizenga's--who
is out ill--opening remarks for this subcommittee hearing:
``America's robust capital markets are key to our long-term
economic growth. Businesses of all sizes depend on our capital
markets to access financing to get off the ground initially,
sustain operations, manage cash, make payroll, and even create
more jobs.
``Although our capital formation framework is better than
it was a decade ago, it is troubling that many of today's rules
and regulations have discouraged companies from going public.
``Unfortunately, the U.S. continues to witness a downward
spiral in the number of new businesses being created, which in
2016 hit a 40-year low. The U.S. has only seen half the number
of domestic IPOs that it did 20 years ago, while the U.S. has
doubled the regulatory compliance costs a business must
undertake.
``With more companies opting for private fundraising rather
than the public market, the number of public companies has
decreased to levels not seen since the 1980s. In fact, 20 years
ago, American investors could pick from over 7,000 listed
stocks. Today, that number stands at merely 3,500.
``This means that everyday investors or Main Street, such
as John and Jane 401(k), are missing out on valuable
opportunities to invest in the next Microsoft, the next Amazon,
or the next Google.
``IPOs have historically been one of the most meaningful
steps in the lifecycle of a company. Going public, as it is
termed, was the ultimate goal for entrepreneurs. You start a
business from scratch, you build it into a successful
enterprise, and then open up the opportunity for the public to
share in your success.
``Going public not only affords companies many benefits,
including access to the public markets, but IPOs are an
important part of the investing public. By completing an IPO, a
company is able to raise much needed capital for job creation
and expansion opportunities, while allowing Main Street
investors the opportunity to have an economic piece of the
action and the ability to participate in the growth phase of a
company.
``For myriad reasons, the public model is no longer viewed
as an attractive means of raising capital. Companies are
drowning in a sea of regulatory red tape and increasing
compliance costs created by Washington bureaucrats.
``This is truly troubling. Instead of constructing
arbitrary laws that cut off access to our capital markets,
Congress should be working to create an atmosphere that helps
promote more capital formation, to allow the free flow of
capital, strengthen job creation, and increase economic growth.
``However, the four draft legislative proposals that we are
examining today do very little to promote economic growth.
Instead, these bills will do nothing but impede economic
growth. By mandating the additional disclosure requirements, it
will only increase compliance costs for companies, and take
away precious resources that could have been used to hire more
workers, increase wages, and grow these companies.
``Instead of working to protect investors and helping to
facilitate capital formation, these proposals will be more
focused on exerting societal pressure on public companies by
demanding meaningless information that is not material to
investors making investment decisions.
``The increased costs for complying with these hollow
disclosures will only stifle growth and discourage more
companies from going public, ultimately hurting American
workers and mainstream investors.''
And with that, I yield back.
Chairwoman Maloney. Thank you.
The Chair now recognizes the gentlelady from Iowa, Mrs.
Axne, for 1 minute.
Mrs. Axne. Thank you, Chairwoman Maloney. And I also want
to thank all of the witnesses for being here. I am so happy
that we are having this hearing today to promote long-term
economic growth, and the two bills I am sponsoring will help
with that.
The first is the Outsourcing Accountability Act, which
requires that public companies disclose in their annual report
the number of employees they have in each State or country.
I was personally surprised when my staff told me that
companies don't report this data, and having this information
would help consumers and investors make decisions to support
companies that help build American jobs.
My other bill we are discussing today would increase
disclosure about human capital management practices at
companies, including workforce safety, compensation, and skills
training programs.
This subject is very important to me, since I was hired by
the Chicago Tribune now almost 20 years ago as a human capital
manager. So I know companies have been working on this for a
long time and have invested in human capital management. And
better disclosure of these practices will help us focus on
long-term growth of companies and the American economy.
Thank you. And I yield back.
Chairwoman Maloney. The Chair now recognizes the ranking
member of the full Financial Services Committee, Mr. McHenry,
for 1 minute.
Mr. McHenry. Thank you. I appreciate the Chair yielding.
The American economy is strong. We had an unexpectedly high
economic growth rate for the first quarter with 3.2 percent.
Job creation was 263,000 new jobs created last month.
Unemployment was at its lowest level in more than 50 years, and
wage growth has increased to over 3 percent year over year.
This is a significant thing. In short, the American economy is
strong.
And yet, we know not everything is perfect. We know that
there are fewer stock listings for average everyday investors
to be able to participate in. That is a problem. It has halved
over the last 20 years. That is significant.
And what we should be talking about as a committee is how
we encourage more public offerings so that average everyday
investors and pensioners can hold those assets and benefit from
a rising economy. How can we link that greater economic growth
to individual gains in our society? That should be our
conversation, rather than the social engineering and government
mandates that we are currently discussing in this hearing.
And I fear that by imposing these mandates we will actually
have fewer public offerings and less encouragement to
participate in the public markets.
And so I hope we can work together to achieve some
bipartisan results, but we need to focus on what is really
important, not social experimentation.
Chairwoman Maloney. Thank you.
I now recognize the gentleman from California, Mr. Sherman,
for 1 minute.
Mr. Sherman. The Republicans have pointed out that
sometimes we load up burdens on publicly traded companies and
maybe that discourages companies from going public. And I will
agree.
That is why all the requirements we are talking about now
should apply to public companies and private companies and any
company that has expenses or revenues of over $100 million in
the United States, because these companies play an important
role in our economy. And if you are a median worker not being
paid enough, that should matter to you, whether your company is
held by private equity or whether it is publicly traded.
So we need information for our society from all of the
major companies. And I look forward to realizing--we are not
the SEC where our powers might be limited to publicly traded
companies. We are the United States Congress, and we ought to
have legislation that applies to all major companies, no matter
how they are owned.
I yield back.
Chairwoman Maloney. Today, we welcome the testimony of a
very, very distinguished panel of witnesses.
First, we have Steven Clifford, who is the author of, ``The
CEO Pay Machine,'' and served as the CEO of King Broadcasting
Company from 1987 to 1992, and as CEO of National Mobile
Television from 1992 to 2000.
Second, we have Heather Slavkin Corzo, who is the director
of capital markets policy for the AFL-CIO, and is a senior
fellow at Americans for Financial Reform.
Third, we have Dr. Abigail Disney, who is the president of
Fork Films, and is the chairperson and co-founder of Level
Forward, which is located in the district I am privileged to
represent.
Fourth, we have Nili Gilbert, who is the co-founder and
portfolio manager at Matarin Capital Management, which is also
located in the district I am privileged to represent.
And last, but not least, we have James Copland, who is a
senior fellow at the Manhattan Institute, where he serves as
the director of legal policy.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes. And without objection, your written
statements will be made a part of the record.
Mr. Clifford, you are now recognized for 5 minutes to give
an oral presentation of your testimony.
Thank you.
STATEMENT OF STEVEN CLIFFORD, AUTHOR, AND FORMER CEO OF KING
BROADCASTING COMPANY
Mr. Clifford. Thank you.
I have served on over a dozen corporate boards and chaired
the compensation committee for both public and private
companies. In that role, I got to see how CEOs are actually
paid. I got to look at the pay system that is used in all large
companies today for CEOs.
As I saw it at work, I said, ``This is crazy.'' It overpays
the CEO. That is a small problem. A much bigger problem was the
impact on morale. And the worst problem was it created reverse
incentives and pushed everybody towards short-term metrics.
So to convince my fellow board members to fire our very
expensive consultants, I began to do some research and I
concluded that it does hurt the companies that use it. It also
impedes economic growth, and it is a principal driver of the
rising income inequality.
Now, let me state that I believe in free market capitalism.
I think with a light regulatory touch, this is the best
economic system known to man. I criticize CEO pay because it
has nothing to do with free markets and it hinders a robust
capital company.
First of all, it has nothing to do with supply and demand.
Now, a market sets the rate for supply--supply and demand sets
a rate for athletes and movie stars. Teams and studios bid for
their services because their services are portable. LeBron
James is going to improve any basketball team he joins. Meryl
Streep is going to improve any movie she is in.
Most CEOs would not improve another company, because their
competence rests largely on the knowledge of a single company,
its finances, products, personnel, culture, et cetera, et
cetera. This is very necessary to run that company, but it is
not worth much outside that company.
That is why three-quarters of all new CEOs--and I am
talking about S&P 500 CEOs--are internal promotions. Companies
rarely bid for an outside CEO. Less than 2 percent of all of
these CEOs were previously the CEO of another public company.
CEO jumps between these companies happens less than once a
year, and when they jump, they usually fail and are twice as
likely to be fired than internal promotions.
So with no auction market to guide them, these firms and
consultants have put together a rigged, corrupted system, a
totally administered system of how to calculate CEO pay. It is
a very complicated system. I will explain it later if you want.
But basically what they did was they started a game of CEO
leapfrog, and CEOs just keep leaping over each other every year
in pay. That has increased CEO pay by 1,000 percent since 1980.
At the same time, the average workingman has virtually nothing.
Now, the system doesn't pay for performance. Studies have
consistently shown that CEO pay and CEO performance are
uncorrelated or even negatively correlated. It doesn't align
them with shareholders and it is not needed to motivate CEOs.
CEOs are the most motivated people you have ever met to start
with.
Perversely, this system channels that motivation, not
towards long-term growth, but towards short-term financial
metrics that will earn a bonus.
For example, the average CEO serves only 4.7 years and gets
85 percent of his compensation in equity, which gives him a
compelling reason to have a high stock price.
There are two ways of getting this. One is to actually beat
the competition with better products at lower prices. The
easier way is to buy your own stock. As you mentioned, the S&P
500 spent $800 billion last year buying back stock. Since 2016,
those companies have not reinvested a penny. It has all gone
towards buybacks and dividends.
The greatest damage falls not on those companies, but on
the company itself. As I said, it is one of the principal
drivers of the increase in income inequality.
So here you have a system that enriches only the insiders
who manage it: the consultants; the board; and the top
executives. They are not going to change it. Shareholder ``say-
on-pay'' votes have ignored that you have a structural problem
here: that the system used to pay them is rigged. And they only
vote against 1 percent of the most outrageous packages.
So when self-serving CEOs and corporate directors neglect
their fiduciary duty, to the detriment of almost everybody
else, I think it is time for government to exercise regulatory
oversight, and so I support the legislation we are considering
today.
[The prepared statement of Mr. Clifford can be found on
page 44 of the appendix.]
Chairwoman Maloney. Ms. Corzo, you are now recognized for 5
minutes.
STATEMENT OF HEATHER SLAVKIN CORZO, J.D., DIRECTOR OF CAPITAL
MARKETS POLICY, AFL-CIO; AND SENIOR FELLOW, AMERICANS FOR
FINANCIAL REFORM (AFR)
Ms. Corzo. Thank you. Chairwoman Maloney, Mr.
Hollingsworth, and members of the subcommittee, thank you for
inviting me to testify.
The AFL-CIO and AFR work on behalf of millions of people to
promote policies that create a safe, sound, and stable economy
that helps all Americans achieve economic security.
My work, to a large extent, focuses on policies to protect
and grow the $7 trillion invested in collectively bargained
retirement plans.
Today, the subcommittee will consider a number of proposals
aimed at promoting economic growth by strengthening workers'
rights and protections in the capital markets. I commend the
subcommittee for taking up these critical issues.
Investors increasingly acknowledge that human capital
management (HCM) is a material financial factor that
responsible investors must incorporate into investment
decisions. HCM refers to a set of practices and strategies for
how a company recruits, manages, and develops its workforce.
Executives always say that their workforce is their
greatest asset, yet rarely offer information on how that asset
is maintained, cultivated, or grown, or what labor costs are
comprised of, or how they are managed.
Policy changes are needed to update disclosure requirements
to require robust human capital management disclosures. The
legislation being considered today would go a long way toward
addressing the current lack of information available to
investors.
Buybacks. In recent decades, companies have spent
exorbitant sums of money buying back their own stock. The 2017
Tax Cuts and Jobs Act hypercharged this practice. In 2018,
companies spent more than $1 trillion buying back their own
stock and are on pace to surpass that level in 2019.
At the same time, the portion of corporate earnings used to
pay workers is near all-time lows for the modern era. Excessive
spending on buybacks has prompted concerns that companies are
prioritizing short-term stock price jumps over long-term
investments.
Executives whose compensation is primarily comprised of
stock-based awards gain the most from short-term maneuvers to
boost stock prices. Workers and long-term investment in
business improvements suffer.
Congress must pass legislation to rein in stock buybacks.
I would also like to address two topics not on the agenda
for today's hearing where policies from this subcommittee could
substantially improve economic security for American workers.
The first is worker representation on boards. The single
most effective way to improve workers' rights and address
income inequality is to empower workers to command better
wages, benefits, and working conditions.
In the corporate governance context, this means ensuring
worker representation on corporate boards. In many advanced
economies with highly competitive private sectors, worker
representation on boards has been the norm for decades. This
must be part of a broader conversation about how we incorporate
stakeholder interests into corporate decisions.
And, finally, private equity. Working people are exposed to
private equity as employees, investors, and participants in the
American economy. Private equity-owned companies employ 11.3
million American workers.
When the companies fail, these workers often lose their
jobs, benefits, and retirement plans. Toys ``R'' Us, Topps,
Haagen, and Caesars are examples that left tens of thousands of
workers unemployed. Sears, owned by a hedge fund that used
private equity style strategies, is yet another example.
At the same time, U.S. pension funds collectively have more
than $800 billion invested in private equity. Unfortunately,
the exorbitant fees that go along with this investment do more
to enrich the already extremely wealthy general partners than
they do to provide for the retirement security of pensioners.
Finally, regulators in the U.S. and around the world have
begun raising alarms that the outstanding risky loans used to
finance LBOs could create systemic risks.
The private equity model exists and is remarkably
profitable due to a series of loopholes and carve-outs in
securities, bankruptcy, and tax law. There is no public
interest reason to provide these. In fact, I would argue that
the public interest demands that policymakers eliminate legal
and regulatory privileges that feed abusive leveraged buyouts
(LBOs).
I encourage the committee to consider these issues.
In conclusion, the best way for investors to do well is to
invest in a stable, sustainable, and growing economy. Sound
economic growth requires employers to invest in workers and
workforce development, to provide family-sustaining
compensation packages so that our consumer-driven economy can
drive, and to devote resources to strategies that give their
enterprises the chance to prosper in the future.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Corzo can be found on page
77 of the appendix.]
Chairwoman Maloney. Dr. Disney, you are now recognized for
5 minutes.
STATEMENT OF ABIGAIL E. DISNEY, PH.D., PRESIDENT OF FORK FILMS,
AND CHAIR AND CO-FOUNDER OF LEVEL FORWARD
Ms. Disney. Thank you. Thank you, Chairwoman Maloney,
Ranking Member Hollingsworth, and members of the subcommittee.
I am a filmmaker, an activist, and the granddaughter of Roy
O. Disney, who co-founded the Walt Disney Company with his
brother. I have no role at the company, nor do I want one, and
I hold no personal animus to anyone there. And I do not speak
for my family, but for myself.
But today I hope to raise some simple questions about CEO
compensation. Does a CEO's pay have any relationship to what
his hotel maids and janitors get? Do the people who spend a
lifetime at the lowest edge of the wage spectrum deserve what
they get, or does any full-time worker deserve the dignity of a
living wage?
Disney is not just any company. It is not U.S. Steel or
Proctor & Gamble or any other iconic American brand. The Disney
brand is an emotional one, a moral one. I would even say it is
a brand that suggests love.
I have spoken up as a Disney about Disney, because I am
uniquely placed to do so and because Disney is uniquely placed
in American life. Those moral undertones and all of that love
need to be put to constructive use, because this is a moral
issue.
Bob Iger is a nice man, a brilliant manager, and so are
most CEOs. But corporate excess has become so normalized that
they and their peers can't really see the problem anymore.
It is hard to worry about a problem that builds slowly, but
the corporate emperor is wearing no clothes. In fact, he has
been doing a long, slow striptease since the 1980s.
There is nothing inherently wrong with a $65 million
payday, as long as your own employees, people my parents and
grandparents taught me to love and revere, are not so strapped
for money that they have to ration their insulin.
Offering education is nice, but what they might earn
someday in the future has nothing to do with what they earned
working all day today.
These are not the values my family taught me.
This company could lead, if it so chose. Disney led when it
offered benefits to same-sex partners; it led when it
prioritized the environment. Disney could lead once more. All
it lacks, ironically enough, is the imagination to do so.
The burden is not just on Disney, and Disney is a long way
from being the worst offender. But for the time being, let's
just focus on what Disney could do.
Disney could tomorrow raise the salaries of all of its
workers to a living wage, and nothing about doing so would
constrain any capital market anywhere. Disney could take half
of this year's enormous bonuses and put them into a dedicated
trust fund that would help with employees' emergencies. It
could offer stock options to all employees and not just to
people at the top. It could hold two or three seats on the
board for employee representatives. After all, when your board
is filled with people who are or want to be CEOs, you are
unlikely to get a lot of pushback about your bonus.
I sincerely hope you will pass the human capital disclosure
bill, but I humbly want to suggest one change to it. Many
people focus on Robert Iger's 1,432 times pay ratio, which is
outrageous indeed, but this is a wildly imperfect measure. That
ratio doesn't reflect the fact that in some sectors, median
workers' pay is higher than in others.
That means that a banker is not getting called on the
carpet for his compensation even though he is just as guilty of
driving his own workers' wages down while walking away year
after year with millions.
We need to measure the CEO's ratio to the salary of his
lowest full-time worker. Why on Earth do we currently behave as
though one's fate has nothing to do with the others'. Low-wage
workers' lives are rendered invisible by the current measure,
and that has made it too easy to assume that their lives have
nothing to do with management's. We have chased vast swaths of
Americans into a box canyon and then blamed them for being
trapped.
Philanthropy is often offered as an answer to the problem,
but this is not a question of individual decisions. We are
talking about the consequences of structures that create and
enforce deeply unfair and inequitable social structures. We
need to change the way we understand and practice capitalism.
Yes, managers have a fiduciary obligation to their
shareholders, but they also have a legal and moral
responsibility to deliver returns to shareholders without
trampling on the dignity and rights of employees and other
stakeholders. It was possible to do this when my great uncle
and grandfather built the company, and it is possible now.
People made this problem, and by people it can be fixed.
Thank you.
[The prepared statement of Dr. Disney can be found on page
92 of the appendix.]
Chairwoman Maloney. Ms. Gilbert, you are now recognized for
5 minutes.
STATEMENT OF NILI GILBERT, CO-FOUNDER AND PORTFOLIO MANAGER,
MATARIN CAPITAL MANAGEMENT
Ms. Gilbert. Good morning, and thank you, Chairwoman
Maloney, Ranking Member Hollingsworth, and members of the
subcommittee, for inviting me to testify.
My name is Nili Gilbert, and I am co-founder and portfolio
manager of Matarin Capital, which is an institutional asset
management firm based in New York City. I also speak with you
today as the chairwoman of the investment committees of both
the David Rockefeller Fund and the Synergos Institute, and as a
Young Global Leader of the World Economic Forum.
I am testifying today not for Matarin Capital, but only for
myself, and my remarks constitute neither recommendations nor
solicitation for any investment.
I am testifying in support of the bill to amend the
Securities Exchange Act of 1934 to require issuers to disclose
information about human capital management in annual reports.
Asset owners from Wall Street to Main Street and many asset
managers like me are increasingly seeking better understanding
of certain material nonfinancial information about the
companies of which we, as shareholders, are owners.
This call would require issuers to disclose data about
human capital and is rising because better insight into this
field would help us to better understand the broad
macroeconomic environment in which we are all operating, and
also because we know that better data about individual
companies can help us to generate better investment results.
This data that has been requested in this bill has been
culled from the Embankment Project for Inclusive Capitalism, a
multi-stakeholder initiative in which 32 companies representing
$30 trillion in assets came together to identify human capital
management practices that were found to be value-creating.
The specific items put forward in this bill should not be
too onerous for companies to collect and will be broadly
relevant across a wide group of companies and are supported by
studies which have shown this data to be material.
As a traditional quantitatively driven investor, I can give
you a sense of how lack of data availability is playing out on
the ground. Our clients are increasingly interested in
identifying nonfinancial risks and opportunities in their
portfolios. And although we are actively seeking ways to
respond to their requests, we are often running into
limitations when it comes to finding the data that we need.
Since companies are not making standardized disclosures on
human capital, many investors are forced to use data prepared
by third-party vendors, which is subjective, less standardized,
and may even contain errors. Third-party data is also very
expensive, which means that the average individual investors
may be at a disadvantage when it comes to their own
investments.
Regulatory standards have proven effective in the past in
offering frameworks that investors can rely on for receiving
sound financial data that we can trust, and the same could be
true in this case.
Standardizing disclosures could also help American
companies by lowering their reporting burden over time.
Currently, there are over 150 different rating systems of
nonfinancial data which are trying to fill in the gap that has
been left by a generally accepted standard. Corporate leaders
have begun expressing fatigue from having to complete so many
reports that are all requesting disparate kinds of data.
Standardization in the future could help to mitigate this.
Additionally, intangible value is becoming an ever more
important part of our economy. Traditional financial data helps
us to be informed about companies' physical, tangible assets.
But over the course of the past several decades, a significant
portion of American companies' assets have become intangible,
for example, talent and the patents that it generates.
With that being said, we are also living in a moment in
history in which the role of labor in the production process is
in flux. With the rise of robotics and artificial intelligence,
there is an open question about how and to what extent
companies will use human workers going forward.
By gathering clearer data today about issues such as worker
skill gaps and training, workforce stability and turnover, and
workforce productivity trends, we would have the information
required to prepare for those changes of tomorrow.
I know that within these walls there have been many debates
about how American institutions should behave, but I and other
market participants like me are seeking information when it
comes to disclosure. I believe that the markets have the
potential to reflect the emerging realities of the present and
the future, but as the old adage goes, we manage what we
measure.
Please give us the tools that will be required to measure
even more of what matters for generating successful investment
returns and creating an economy that will support a bright
future for the American people.
Thank you.
[The prepared statement of Ms. Gilbert can be found on page
99 of the appendix.]
Chairwoman Maloney. And Mr. Copland, you are now recognized
for 5 minutes for your testimony.
STATEMENT OF JAMES R. COPLAND, SENIOR FELLOW, AND DIRECTOR,
LEGAL POLICY, MANHATTAN INSTITUTE FOR POLICY RESEARCH
Mr. Copland. Thank you, Subcommittee Chairwoman Maloney,
Chairwoman Waters, Representative Hollingsworth, and members of
the subcommittee. I appreciate the opportunity to testify.
My name is James R. Copland. I am a senior fellow with and
director of legal policy for the Manhattan Institute for Policy
Research, and the proposed legislation under consideration by
the subcommittee today significantly intersects with my areas
of research.
I believe that each of the draft bills is seriously
misguided. Each is likely to retard, not promote, economic
growth, and I strongly urge the committee not to take up these
ill-considered pieces of legislation.
Let's turn first to the three disclosure bills. The
statutory text of the Federal securities laws expressly calls
on the SEC to look at material facts to be disclosed to
investors, as Ms. Gilbert was suggesting.
In his opinion for the Supreme Court decision in 1976, TSC
Industries v. Northway, Justice Thurgood Marshall explained
that some information is of such dubious significance that
insistence on its closure may accomplish more harm than good.
Unfortunately, in recent years the SEC has been prodded by this
body to require just the sorts of disclosures that worried
Justice Marshall, as I discuss in my written testimony.
The three disclosure bills before the committee follow that
trend. The pay raise bill is basically a warmed-over version of
the pay ratio disclosures currently required under Dodd-Frank
Section 953(b). That has been aptly characterized as a
disclosure as sound-bite rule, likely to prompt media stories
but very unlikely to be useful to a profit-maximizing investor.
There is generally little reason to expect the ratio of CEO pay
and median worker pay to be constant or meaningful.
Last night the NBA held its draft lottery. Mr. Clifford is
wrong. It is not the market that sets LeBron James' salary, it
is the collective bargaining agreement with the NBA, and there
is no reason to expect NBA salaries under the maximum contracts
to have any relationship to the average wages of concession
workers.
Ditto when comparing the compensation of headliner
Hollywood actors and actresses against that of film crews. It
is not Bob Iger, talked about by Dr. Disney, who is the highest
paid employee at Disney this year. It is Robert Downey, Jr.,
who just got $75 million for the new ``Avengers'' movie.
The right comparison group for chief executives is not the
median company worker, but a host of competing candidates for
senior executive services, including not only other businesses,
but other employers that might employ top business talent, such
as private equity firms, such as investment banks, management
consultancies, and, of course, entrepreneurial ventures.
The rise in executive pay over recent decades is real, but
it has been driven by stock investors, chiefly institutional
investors, that have sought to align managers' incentives with
those of shareholders through a variety of equity compensation
vehicles. The strategy has paid off. Over the last 3 decades,
the broader stock market has grown tenfold.
The committee has before it two other additional disclosure
bills. Each fits into that pay ratio/disclosure as sound-bite
paradigm. The outsourcing bill would require companies whose
stock trades on public exchanges to publish lists of workers by
country, which would doubtless generate confusion. Companies
using wholly-owned subsidiaries would appear to have more
foreign presence than those contracting with foreign firms.
The so-called human capital management bill would require
the SEC to implement a host of detailed disclosures around
workforce composition and management, including diversity data
and goals. But there is little reason to believe that such
disclosures are material to the profit-maximizing investor in
general. Indeed, over the last decade, shareholders have
routinely considered and rejected shareholder proposals
suggesting the publication of such data.
Let's turn to the share buyback bill. It addresses a
phantom problem with a counterproductive solution. The return
of capital to shareholders, more than 70 percent of which are
institutional investors that reallocate capital, is the most
efficient way to shift societal resources to their highest
value use.
Consider that 5 of the 6 largest companies in the world
today are American companies, and they simply did not exist 50
years ago. Three of them did not exist 25 years ago. Any laws
or rules that would limit shareholder corporations from
returning capital to investors, instead favoring retained
earnings, is simply foolhardy.
Of course, companies can pay out capital through corporate
dividends, but there are sound economic reasons why a company's
board of directors, acting as fiduciaries, would prefer share
repurchases, in many cases, to common dividends, as I outlined
in my written testimony. There is simply no reason to saddle
the SEC with a new study, a new rulemaking proposal, as
suggested in this bill.
In conclusion, I believe that each of the draft bills is
seriously misguided and likely to impede, not promote, economic
growth. I encourage members of the committee to ask questions,
which I will endeavor to answer to the best of my ability.
Thank you.
[The prepared statement of Mr. Copland can be found on page
65 of the appendix.]
Chairwoman Maloney. Thank you.
I would first like to question Dr. Disney, but first
comment on her very excellent article that was recently in The
Washington Post on compassionate capitalism, entitled, ``It's
time to call out Disney--and anyone else rich off their
workers' backs.'' I ask unanimous consent to place it in the
record.
Without objection, it is so ordered.
So, Dr. Disney, you spoke really very passionately, and I
would say persuasively, about the need to rein in executive
compensation, and you obviously know a great deal about it and
know a lot of highly paid executives.
So let me ask you a simple question. In your opinion, do
most executives respond to policies that shame them for their
extravagant pay packages that are just really outrageous when
you see it--$79 billion versus $7.1 billion, they are paid 11
times as much in tax cuts as they are giving out to workers'
bonuses and/or wage hikes--or are most of these executives
absolutely immune to public shaming over their compensation
packages?
Ms. Disney. I think that shame is probably not going to
work very well unless the shame comes from inside. And that is
why I think that much of the change has to be an ethos shift, a
culture shift. Because pundits, commentators, people who write
in newspapers about business, have all consumed and swallowed
whole this idea that a company exists solely for its
shareholders and solely to maximize profits, and that is simply
not true. Companies have always had other stakeholders and
certainly companies have moral obligations to their employees.
So that is why I argue that the median worker ratio is, in
fact, not a helpful ratio, because it treats the lowest paid
worker as though they are invisible or not even really employed
at the same company that they are laboring at every day to
promote the well-being of.
So I think that what needs to happen is, first of all, a
shift in consciousness about what we are doing when we start a
business. There are certain things that just aren't optional.
If you can't afford to pay your workers a living wage, then
really you can't afford to hire your workers.
And we need to stop and remember that certain things should
be thought through at the beginning, at the top of the
waterfall, when your revenues come in, and not at the bottom,
once everybody has taken their share, so that you can give the
leftovers to your employees or whomever else is being treated
poorly.
As long as you have employees working full-time at your
company who are sleeping in their cars, who are rationing their
insulin, who are driving 3 hours each way to get to work, who
are having their hours changed in a whimsical way that prevents
them from being able to supplement their income with second and
third jobs, as long as any of that is happening, and your CEO
is walking away with $65 million or maybe as much as $97
million in a year, this is just simply on its face morally
wrong.
Chairwoman Maloney. Thank you.
Ms. Corzo, I want to ask you about the company's human
capital disclosure.
Why are the current disclosures that companies make about
their workforces inadequate and what kind of disclosures do
companies typically make?
Ms. Corzo. Thank you.
Right now, the basic information that investors get from
companies is the number of people employed globally. It used to
be that companies voluntarily would disclose the numbers in
various jurisdictions, but that practice has declined in recent
years.
I think that it is probably due to the fact that, first, it
is not mandatory to disclose where the workers are; and second,
that international firms have outsourced jobs, they recognize
that that is a reputational risk, and that it is something that
they probably don't want to make public if they are going to
have to answer for it.
So right now there is really minimal human capital
disclosure that is made available to investors. It makes it
really difficult for investors to analyze effectively how
companies are managing what they say themselves is their most
valuable asset.
There is a lot of additional information that would be
extremely useful. There is a bill today that is about
offshoring. That is clearly something that is very important
for investors. Investments that are made in workforce
development and education, money spent on wages and benefits,
gender equality issues--there are a whole list of issues that
would be really valuable for investors. There is really no
single factor that can tell the whole picture. But as a whole,
we know that investors are extremely interested in this.
Chairwoman Maloney. Thank you.
Ms. Gilbert, would you like to comment on that? And as an
investor, what kind of human capital disclosures do you think
or do you find are most important?
Ms. Gilbert. As an investor, when I think about human
capital data, using the information often to try to forecast a
company's business or its stock price. And so sometimes when
you learn about a company's business strategy, then you look at
the numbers, you may find differences.
And so we value having data as basic information to be able
to evaluate whether what we hear about a company's strategy is
really true.
Currently, as Ms. Corzo says, we are using information
about the number of employees, but we don't have good, clean
information about how those employees are being compensated,
treated, their benefits, and the other issues that Ms. Corzo
described.
Chairwoman Maloney. My time has expired.
The gentlewoman from Missouri, Mrs. Wagner, is recognized
for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman.
And I thank Congressman Hollingsworth for yielding.
Mr. Copland, I appreciate your testimony and being so
specific on the ill-guided pieces of legislation that have been
brought forward today.
There has been a decline in American IPOs over the last few
decades and a growing trend of American companies opting for
private capital as opposed to public markets. Should we find
these trends concerning? And why?
Mr. Copland. I think we should. I actually testified here
13 years ago on this. The IPO thing is nothing new. It is a
decades-long trend at this point. We actually probably are
going to have, by dollar value, a good IPO year this year. But
the number of publicly traded companies has fallen.
Now, of course, the market capitalization has gone up. And
so what does that tell us? It tells us that below a certain
threshold, smaller companies are finding it disadvantageous to
be a publicly traded company. And that is due to a host of
regulations and other issues, some of which I point out in my
written--
Mrs. Wagner. I agree. And what impact do IPOs have on
employment and job growth? And what does an uptick in U.S. IPOs
mean for Main Street investors?
Mr. Copland. Well, there are two factors here, right? So
one is IPOs give you a very liquid supply of capital. And it
just doesn't make sense to starve new businesses of capital.
That is what is going to generate jobs.
But the second fact is, the Main Street investor point is a
very, very important one, because Main Street investors can
invest in publicly traded stocks. They are going to have a
harder time investing in private companies.
And to the extent that our capital shifts more and more
into private companies, we are going to look more like Italy,
where you have rich families controlling businesses, and the
average worker and the average worker's pension plan is going
to be less invested in that.
Now, some of this we work around, because pension plans do
invest in private equity funds and what have you. But really
you are going to have a disconnect and a two-tiered capital
structure, which I think is unhealthy for our democracy.
Mrs. Wagner. You have already discussed how today's hearing
and the bills put forward create additional requirements on
American public companies, greatly adding to their regulatory
compliance costs.
None of the proposals discussed today would apply to
private companies. So would these increased compliance costs
for public companies deter private companies from going public?
Mr. Copland. Of course, they would. And they already are.
That is the point. We have just seen--until maybe this year, we
have seen a real retreat in IPOs. We have seen consolidation.
We have seen fewer publicly traded companies.
And as someone who has invested in startup businesses, they
don't want to go public. The last thing they want to do is go
public because of all of these requirements.
Now, clearly, as Representative Sherman suggested, this
body, Congress, has the constitutional power under current
Supreme Court doctrine to start expanding its role into private
businesses, but I think that would be really misguided.
Mrs. Wagner. Mr. Copland, in your testimony you described
stock buybacks as ``good for investors,'' and that they ``help
to protect investors' interests, promote efficient capital
markets, and facilitate capital formation.''
Can you explain why one-size-fits-all limitations on a
company's ability to repurchase its stock or a complete ban on
buybacks could result in the inefficient allocation of capital
for a company and hurt the economy and wage growth in the long
run?
Mr. Copland. As I suggested in my oral testimony, we have a
dramatic reshifting all the time of money from one value to
another, and that is driven by these capital markets. So it
shouldn't be surprising that there is a large number of share
buybacks when there are tax law changes. In fact, the tax law
changes would prompt investors to want to reallocate capital
based on that shift.
And that is why we have a market now that has companies
like Facebook and Amazon and Google, which just didn't exist 25
years ago at all, valued so highly, because we have these
liquid markets.
Now, if you just constrain it to corporate dividends, then
you are constraining boards' ability to take advantage of their
information, if they think the stock is mispriced, but you are
also creating necessary capital events if you actually pay out
your earnings to shareholders, which means that an investment
firm like Ms. Gilbert's buying and selling securities is going
to be getting more taxable events.
So you are not helping your investors out. You may be
generating a little tax revenue, but you are not helping
investors out by--
Mrs. Wagner. And quickly, I may not have enough time, but
how would executive pay ratio disclosure, as proposed, further
solidify proxy advisory firms' influence over corporate
governance matters for U.S. public companies? And what are the
consequences of increased proxy advisory firm influence for
public companies and their shareholders?
Mr. Copland. Proxy advisory firms are a big topic. I have
written a lot about it. I have some in my written testimony.
I don't think the pay ratio is going to affect how they
behave, because I don't think it is material. I don't think
they are going to pay a lick of attention to it.
Mrs. Wagner. I yield back. Thank you.
Chairwoman Maloney. The gentlewoman's time has expired.
The Chair of the Full Financial Services Committee,
Chairwoman Waters, is now recognized for 5 minutes.
Chairwoman Waters. Thank you very much. And, Mrs. Maloney,
this is a most important hearing.
As I came into this room, I heard some of the testimony.
And I want to make a few comments before asking a question or
two, and say to Dr. Disney, I am so proud of you and your
courage. I am so proud that a woman who could enjoy all of the
privilege that she would want to enjoy would have the
compassion and the commitment to go public and to come before
this committee and tell the truth about what is happening at
the family business.
We don't have many people like that here in Washington,
D.C. You are a prime example of what a real American citizen
is. Thank you so very much for your courage.
[applause]
Chairwoman Maloney. The committee will come to order. And
please respect the orders of the committee, which is no
clapping, just focusing on the importance of the issues we are
talking about.
Thank you so much.
Chairwoman Waters. Thank you for reminding us, Mrs.
Maloney, but I loved that clapping.
Chairwoman Maloney. I did, too.
Chairwoman Waters. Thank you.
Just a couple of questions.
Ms. Gilbert, I heard you when I first came in, and I was
pleased to learn that you are a co-founder of your firm and
that you are working with CalPERS and maybe even CalSTRS. I was
an assemblywoman at one time in the State of California and
created the emerging fund for asset managers to break into the
possibility of managing these firms in the State of California.
Can you tell me, when you talk about this information that
is so important to making good investment decisions,
specifically what are you talking about? Are you talking about
knowing as much as you can possibly know about all of the
employees? What kind of information? How does that really help
you?
Ms. Gilbert. Thank you, Madam Chairwoman. I am familiar
with the work that you did in the State of California. Without
that work, Matarin wouldn't exist today, so I'm very grateful.
There is something in investments called the fundamental
law of active management, which says that the returns that you
can generate in a portfolio are proportionate with the amount
of information that you have about the securities that you may
be potentially investing in. Of course, it is important that it
be relevant, material information.
We have seen, and you will note in the written testimonies,
many academic studies that show that the data that has been
requested in the bill on human capital management has been
proven in academia to be material, but as investors it is very
important for us to take in clean data and evaluate it
ourselves as we would apply it in the markets.
I also would note that when we think about issues of human
capital management today, that this has become a hugely
important part of the American economy. When you look at our
largest four sectors, it is technology, healthcare, financial
services, and communications, all of which rely very heavily on
talent and people to yield their success.
Without having good clean information about how that talent
is being managed, we are simply not able to get a clear picture
of what these key companies in our economy are truly doing.
Chairwoman Waters. Thank you very much. I appreciate that
information.
I think it was Ms. Corzo who talked about buybacks. And, we
have gone through the President of the United States having
initiated a tax reform bill--so-called reform--where these
companies told us and told the world that they were going to
invest in their employees, that they were going to expand the
inventory, on and on and on, and they were going to increase
pay and bonuses, but they did not.
Would you recommend that we go on record in terms of
buybacks and that we use the power of this Congress to
eliminate the ability to use funds that have been generated by
tax reform from being used for buybacks?
Ms. Corzo. Thank you.
Yes, I think it is critically important that Congress take
affirmative action to address the problem of abusive stock
buybacks. As you mentioned, the Trump tax bill triggered $1
trillion in stock buybacks last year. That is a trillion
dollars that could have been invested in raising workers'
wages, in developing research and new products, and in
corporate growth that would drive our economy into the next
several decades.
So absolutely, I think this is a problem. I think that
business today is eating the seed corn of the future. And we
really need affirmative policies to stop the financial
engineering and focus on what really matters in our economy.
Chairwoman Waters. Thank you so very much.
And I yield back the balance of my time.
Chairwoman Maloney. Thank you very much, Chairwoman Waters.
The gentleman from Indiana, Mr. Hollingsworth, is
recognized for 5 minutes.
Mr. Hollingsworth. Dr. Disney, I appreciate you being here.
And like Chairwoman Waters said, I appreciate the verve and
passion that you have for this issue.
I heard you several times say that the CEO of Disney makes
too much money. I wondered if you might tell me how much money
he should make?
Ms. Disney. Thank you for that question.
Mr. Hollingsworth. Great.
Ms. Disney. I wouldn't begin to tell you what the number is
that he should make.
Mr. Hollingsworth. Okay, great. Tell me, what should--
Ms. Disney. But let me--
Mr. Hollingsworth. Reclaiming my time, you don't know what
the number is?
What should the pay ratio be between the median wage of
Disney employees and the CEO of Disney?
Ms. Disney. First of all, I believe that the ratio should
be measured to the bottom worker.
Mr. Hollingsworth. I know. That is what you said. I will
ask you that question next.
Ms. Disney. If you take his salary and assume he works a
60-hour week and never takes a vacation, he is being paid
$21,000 an hour.
Mr. Hollingsworth. Got it.
Ms. Disney. So I would argue that that is on its face too
much money for anyone.
Mr. Hollingsworth. What is the right number then?
Ms. Disney. It would be closer to $10,000 an hour and maybe
lower than that.
Mr. Hollingsworth. Is $10,000 the right number for every
CEO of a public company or just Disney?
Ms. Disney. Of course not. And as I said in my remarks,
there is nothing inherently wrong with a $65 million payday, as
long as his employees are not going home and rationing insulin.
Mr. Hollingsworth. Yes. You also mentioned that you believe
every employee should be paid a living wage. Will you tell me
what that living wage is in San Francisco?
Ms. Disney. I would tell you that there are economists who
could tell you what the living wage is--
Mr. Hollingsworth. What is the--
Ms. Disney. --in different cities depending on the cost
structures in those cities.
Mr. Hollingsworth. Reclaiming my time, what is the living
wage in Salem, Indiana? What is the living wage in Salem?
Ms. Disney. I don't know. But I do know in Anaheim, it is
$24.
Mr. Hollingsworth. The point I am trying to make is we are
throwing around numbers here on appropriate CEO pay, what CEO
pay should be, what the living wage should be in X city. But
there aren't any specifics on how we will do that, right?
And what I continue to hear from you and others is, oh, we
will just defer to a group of scientists who will endeavor to
figure out what the appropriate CEO salary is, what the
appropriate median wage is, what the appropriate living wage
is, in every single location for every single job, up and down
the spectrum, sea to shining sea. We have a definition of that.
That is socialism. We know what that is.
Ms. Disney. Okay. So--
Mr. Hollingsworth. So, with respect, reclaiming my time,
Mr. Copland, I want to talk about the outsourcing bill that has
been presented. One of the challenges associated with this
particular bill is that it merely outlines the number of
employees located in the U.S. versus another country.
So if I purchase a fully constructed product that was
manufactured in China, and I have a single employee in the
United States who just distributes that out, I have 100 percent
of my workforce in the United States. But if I purchase--50
percent of that product's value-add, manufactured in China, 50
percent of the value-add is here in the United States, I have
10,000 employees in both, only 50 percent of my workforce is in
the United States. So it looks like I am outsourcing jobs when,
in fact, I am creating more value for that product in the
United States in the second example compared to the first.
I wondered if you might elucidate what some of the
challenges are around this simple ratio in trying to glean real
and meaningful information, which Ms. Gilbert rightfully talks
about, from such a simple metric.
Mr. Copland. I don't think you can have meaningful
information. I think you have elucidated it exactly right.
There is just no way to take an aggregate number.
And you are not going to be able to force a Chinese
manufacturer to disclose its workforce data. So the company
here that is largely an import company is going to look like it
has more domestic product than the one that is manufacturing
here but has subsidiaries overseas.
Mr. Hollingsworth. Right. Exactly.
I wondered if you might also talk a little bit about some
of the challenges about the pay ratio and how some of those
disclosures might lead to misinformation rather than
information, just in the metric by which it is calculated.
And I believe there was a recent article that even
elucidated how variable this is year to year for individual
companies and how it leads to really perverse outcomes.
Mr. Copland. It is going to vary year to year, because,
driven by investors, as I said in my oral testimony, most
executives are now paid with some sort of equity compensation
plan. And that is to ameliorate what economists call agency
costs and align them with other shareholders. So the top line
is going to go up and down. The other line is going to be
relatively flat.
But it is also going to create a lot of distortion, because
some companies may choose to have in-house workers who are
lower-value workers; others will contract out with
subcontractors or foreign companies to provide goods and
services. And, therefore, you are going to have a mismatch.
And, again, the company that looks like its ratio is small may
be small because it is outsourcing and subcontracting more.
Mr. Hollingsworth. I absolutely agree that data is really
important. But having the right data and having the right
metric is what we should be looking for, not just simple
metrics here.
And with that, I yield back.
Chairwoman Maloney. Thank you. Without objection, and
consistent with past committee practices that have allowed
filming at the request of a witness, the cameraman associated
with one of the witnesses is permitted to film this hearing.
And this is a unanimous committee request.
Mr. Hollingsworth. Reserving the right to object, I think
it is important to go on the record that the Minority was not
consulted prior to this discussion. Consistent with House
rules, filming by a nonaccredited person or entity may only
occur by consent of the Full Committee. I would ask that moving
forward, the Majority consult with the Minority to ensure that
the House rules are followed appropriately.
Mrs. Wagner. I refer the Parliamentarian a question. Am I
recognized?
Chairwoman Maloney. The gentlewoman is recognized.
Mrs. Wagner. Thank you. I have been on this committee now
for 4 terms, 8 years. I have never been aware that a witness
has brought in their own filming crew for--I don't know what it
is for, documentation--documentary, political purposes. Is this
being covered by C-SPAN as usual? Are we aware? This hearing?
Chairwoman Maloney. Parliamentary query. On April 30th, the
committee accommodated Daryl Carter from the Multifamily
Housing Council, a witness chosen by the Republican side. I
note that the cameraman is remaining stationary for the
remainder of this hearing.
Mrs. Wagner. I think that was litigated unilaterally by the
Majority. The Minority was not aware. I am just wondering what
the filming crew is--
Chairwoman Maloney. There is no parliamentary inquiry.
Okay, the gentleman from Georgia, Mr. Scott, is recognized
for 5 minutes.
Mr. Scott. Thank you very much, Madam Chairwoman. Mr.
Copland, let me start with you. I listened intently to your
remarks. You said this: You said that it is assumed, meaning
diversity, the data, the composition, that this whole issue is
assumed to be of little interest to ``profit-maximizing
investors.'' I want you to explain that. But then you go so far
as to describe this issue of diversity as fitting within ``a
disclosure as a sound bite.''
Now, Mr. Copland, let me give you the latest data, because
I think that you have generalized here. And with all due
respect, of course, everybody has their opinion, but let me
share with you the latest information on this, and then you
tell me if what we are discussing needs to be just a sound
bite. African Americans and women and other minorities are
drastically underrepresented in the top tiers of our companies
and our corporate leadership.
For example, here are the latest facts: Women represented
just 5 percent of Fortune 500 CEOs in 2018. If that is not bad
enough, even this number in 2018 has declined from what it was
in 2017. The number of African-American CEOs running Fortune
500 companies last year; it was just three people. And even
that number has also declined in previous years.
So the carelessness with which your testimony has pierced
this committee, when it comes to the inclusion, the
participation, and your denial and diminishing the significance
of the problem, certainly raises a great deal of eye-opening
realization as to why we are having this hearing, and why I
hope that my information that I have relayed to you during this
committee hearing, will broaden your perspective and enlighten
you to some facts that you are obviously dimly aware of.
Mr. Copland. Am I supposed to be able to respond to that?
Mr. Scott. Please do, sir.
Mr. Copland. Yes, what I was saying was not at all that
there is equal, or even yet representation in terms of CEOs,
based on different racial minority groups or women or anything
like that. And I am not saying that is not a matter of concern.
It is also not very related to this bill, right? It is very
easy to get data on whether the CEO is a woman, or is a racial
minority or what have you. So, investors are able to trade on
that. What you are talking about here is a panoply of other
disclosures. And when I am talking about what profit-maximizing
shareholders think, I mean, I run a website--proxymonitor.org.
I track shareholder proposals at these big companies. These
sorts of disclosure rules have been introduced in shareholder
proposals time and again. A majority of shareholders, time and
again, have voted against them.
Now, that doesn't mean that a quantitative fund manager
like Ms. Gilbert may not be able to get certain data that could
be valuable to her as an investor, but I want to caution the
committee that the actual investment response there may not be
what you think.
Mr. Scott. I only have 5 seconds. I want to give Ms.
Gilbert and Ms. Disney time to give their viewpoint on this,
because this is important. This is the heart of what we are
talking about here. Do you all see what I am saying here?
Chairwoman Maloney. Mr. Scott, your time has expired, and
maybe the next questioner on our side can follow up on your
question. But right now, the gentleman from Arkansas, Mr. Hill,
is recognized for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman. Thanks for convening
this hearing on these bills. It is good to have this very
knowledgeable panel before us. I want to start with a quote
from Warren Buffett, the chief executive at Berkshire Hathaway,
who is clearly a recognized writer and thinker, as well as
practitioner in that area, and Mr. Buffett says stock buybacks
are sensible for a company when its shares sell at a meaningful
discount to conservatively calculated intrinsic value. Indeed,
disciplined repurchases are the surest way--surest way--to use
funds intelligently. It is hard to go wrong when you are buying
dollar bills for 80 cents or less.
Mr. Buffett goes on to remind managers, however, to never
forget that in repurchase decisions, price is all-important.
Value is destroyed when purchases are made above intrinsic
value.
So this discussion today about buybacks, I want to start
out following up on Mr. Buffett with some facts. First of all,
no company wants to either buy stock back or pay too much in
dividends, because that would mean their stock will be out of
place in the competitive capital market. But if you look since
1880, companies have a process of returning about 73 percent of
earnings since that time, 140 years. And they do that through
both dividends, and now, in the last 40 years or so, through
net share buybacks. 2018 was about 88 percent percentile,
versus that median since 1880, of 76 percent, so it is up
higher.
But if you look in 2018, why is it up higher? Why is it
spiked up in 2018? It is partially due to companies returning
capital to the United States, capital that was trapped outside
the United States, and freed up from the tax reform which, for
40 years, was a bipartisan objective to reduce the double
taxation on international American profits, not so bipartisan
recently.
And if you look at the numbers in 2018, just 20 stocks out
of the S&P 500 accounted for 70 percent of the buybacks, Madam
Chairwoman. And those were what, the companies that had the
most money trapped overseas. So as Mr. Buffett notes, there are
benefits in our economy to bringing those dollars home to the
United States, benefiting shareholders. Who are the biggest
beneficiaries? Shareholders. The money doesn't disappear; it
goes to the AFL-CIO pension fund.
They have an S&P 500 index fund that they operate. It is
benefited. CalPERS, mentioned by our Full Committee Chair, has
50 percent of its exposure to global equity. They benefit.
Those pensioners benefit. It allows them to use that money for
the highest and best use.
And, finally, I am hearing consistently today and
previously on both sides of the aisle, complaining that if one
is doing a buyback, that one is not investing in research and
development, not developing HR, human resources issues, not
involving capital expenditures to increase growth and jobs and
productivity in the United States. 2018's numbers. 2018's
numbers, 14 percent in the S&P 500 increases in capital
expenditures, a high since 2011. And in R&D spending, 11
percent, a high since 2006. And Edal, at 11 percent, that is
the median over the entire history that I could find on R&D
spending as a percentage of revenue in the S&P 500.
So, Mr. Copland, given that, and given your work on this
topic, do you agree that a buyback is a part of capital
allocation that should be under the market pressures of people
like Ms. Gilbert, and important institutional investors, or the
AFL pension fund, for scrutiny, but that it is a way to let
capital recirculate in our economy? Do you agree with that?
Mr. Copland. It is a vital way, and it is just unambiguous.
To suggest that the companies ought to retain all their
earnings is effectively saying, we want our economy organized
around U.S. Steel and International Paper, not Google and
Facebook. That is just crazy.
Mr. Hill. And, Mr. Copland, also, on the pay ratio, what is
a better way to define it? I hear so many complain that they
don't like the median income test, and others don't like the
complexity of it. Could you submit in writing for the record--
and also, Dr. Disney, if you would as well--submit for the
record, how does that ratio, if it is so important to so many
stakeholders, how should it be redefined, because I think most
people are very frustrated by it, maybe on both sides of the
argument.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Maloney. Thank you. The gentleman from
California, Mr. Sherman, is recognized for 5 minutes.
Mr. Sherman. The gentleman who just spoke talked about the
importance of R&D spending, I think it is critical for our
economy. I would point out that the Ways and Means Committee
has put into our tax law, at substantial cost to American
taxpayers, incentives to encourage R&D, but this committee has,
without paying any attention to it, allowed the SEC to allow
the FASB to put in dramatically illogical accounting theory-
wrong, accounting standards that discourage expenditures on
R&D. And if we care about R&D, and we care about the
responsibilities of this committee, we ought to be taking--we
ought to be acting to repeal FASB pronouncement number 2, which
discourages R&D, and at a time when Congress has decided it is
worth taking money away from people and from important programs
and to--only to encourage it.
We are talking here about CEO pay. And when we talk about
CEO pay and we use that to drive up wages a bit, that is a good
thing. But we need an economic policy that creates a labor
shortage so that we will see real wage increases that we need,
and we need to educate and provide apprenticeship programs for
our workers so that they are more valuable and are paid more.
But when we talk about CEO pay in the context of a fair
society, let us remember that the heirs and the entrepreneurs
have far more money than the CEOs and that if we want to deal
with fairness, it is not a matter of just taking some big-name
CEO and having them paid less. We need a much more progressive
income tax. We need an estate tax that matters, the way we did
under Ronald Reagan. We need, perhaps, a wealth tax as proposed
by at least some Senators, and we may consider taxes on
unrealized capital gain. But for us to say that all of the
problems with wealth distribution are because of 5 or 10 CEOs,
or 20 or 30 CEOs, is absurd.
I will point out that Jeff Bezos probably makes more money
than Bob Iger by a long shot, but he has no salary at all. He
pays himself nothing. It is all in unrealized appreciation,
minus divorce expenses.
Mr. Clifford, when a corporation has more--makes money, it
can either invest it, if it has good places to invest it, it
can use it as reserves, or it can distribute it. So we are
going to see some corporate distributions. In fact, if there
were no corporate distributions, nobody would own stock, and
every share would be worthless. So the issue is, share buybacks
versus dividends. Back in the old days, companies paid
dividends. Most CEOs have stock options. Does a CEO benefit
more if the money is paid out as a stock buyback, which raises
the value of the remaining shares, as opposed to a dividend?
Mr. Clifford. The CEO, assuming he is going--assuming they
make that calculation, they will calculate what will maximize
stock price.
Mr. Sherman. And do most stock options have an adjustment
for dividends paid while the option is outstanding?
Mr. Clifford. Most do.
Mr. Sherman. Most do. So that the CEO might--would benefit;
if you retain the money, the stock is worth more?
Mr. Clifford. He might.
Mr. Sherman. He might?
Mr. Clifford. He is certain to benefit when--
Mr. Sherman. And I will point out on diversity, I just
slipped into referring to the CEO as a ``he,'' and maybe I have
spent--
Mr. Clifford. Ninety-five percent.
Mr. Sherman. I know, that is 95 percent true. It certainly
shouldn't be. Go ahead?
Mr. Clifford. The CEO has a compelling quick way to cash
out when he has a buyback. An increase in the dividend
provides--and I will use the male pronoun now--provides him a
small amount of money. So those things are not the same as far
as somebody who is planning to cash out soon--
Mr. Sherman. Is there another reason corporations have
preferred the buyback, rather than the dividends of old? Is
there a tax advantage still? There used to be a tax advantage.
Mr. Clifford. No, I think it is--I think what happened--
there are two drivers. One is that it benefits the executives
who are cashing out. It also keeps the activist shareholders
off their backs. So those are two great incentives to have a
buyback rather than a dividend and a reinvestment.
Mr. Sherman. Well, let's hear it for--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Sherman. --activist shareholders, and I yield back.
Mrs. Wagner. Madam Chairwoman, I believe I have a
parliamentarian inquiry at the table here. I don't believe the
UC has been properly propounded, so I have a couple of
questions. I see that Dr. Disney--
Chairwoman Maloney. Well, first of all, I would like to
ask, does the gentleman withdraw his reservation?
Mr. Hollingsworth. I do. Our concerns have been noted on
the record.
Chairwoman Maloney. Okay.
Mrs. Wagner. I reserve the right to object.
Chairwoman Maloney. You object that he is withdrawing his
reservation?
Mrs. Wagner. I am reserving the right to object. And I have
a couple of questions.
Chairwoman Maloney. I don't believe you can reserve at this
point.
Mrs. Wagner. He withdrew his, so I--
Chairwoman Maloney. Our understanding is that the filming
is for a personal biography for Dr. Disney.
Mrs. Wagner. And that is my question--
Chairwoman Maloney. I now recognize the gentleman from
Ohio--
Mrs. Wagner. Madam Chairwoman, a parliamentary inquiry. I
would like to know the purpose of the filming. It is highly
unusual that Dr. Disney, or that any witness would not use the
C-SPAN coverage and would bring in their own professional film
crew. I am wondering if this is going to be shown to the
public. I am also wondering, Madam Chairwoman, if this is for
profit or a not-for-profit entity, and I would just like those
questions answered if possible, please, by my friend, the
Chair?
Mr. Sherman. If the gentlelady will yield--
Chairwoman Maloney. I would like to clarify, the hearing is
not being filmed by C-SPAN. Subcommittee hearings frequently
are, but this one is not being filmed by C-SPAN.
Mrs. Wagner. And what is the purpose of Dr. Disney's
professional film crew being here? Is this being personally
used? Is this being shown to the public? Is it a for-profit or
a not-for-profit entity?
Ms. Disney. Should I answer?
Chairwoman Maloney. It is for a personal biography, is my
understanding.
Correct me if I'm wrong, Dr. Disney, personal?
Ms. Disney. I am happy to answer. I am hoping, perhaps, to
make a film about the issue of income inequality. And this
might figure into it in some way, so we brought a--
Mrs. Wagner. So this is a documentary film--
Ms. Disney. Yes.
Mrs. Wagner. --that will be shown to the public?
Ms. Disney. Yes.
Mrs. Wagner. Is this a for-profit or not-for-profit entity?
Ms. Disney. It might be a for-profit entity, but I have
certainly never seen a profit on any of it. But it is likely
maybe to be seen at film festivals, or we may never use any of
the footage we are shooting here.
Mr. Sherman. Will the gentlelady yield?
Mrs. Wagner. Yes.
Mr. Sherman. I have seen news cameras in hearings for the
last 22 years. I am told that Fox News is a profit-making
entity, so--
Mrs. Wagner. Reclaiming my time. I don't believe this is
a--I don't believe that this--
Chairwoman Maloney. This is not a proper parliamentary
inquiry at this point.
The gentleman from Ohio, Mr. Davidson--
Mrs. Wagner. I object--I object to the UC.
Chairwoman Maloney. --is recognized for 5 minutes.
Mrs. Wagner. I object to the UC and I have a
parliamentarian inquiry at the table, and I would like to--I do
not believe that a film crew is an accredited news
organization. This is not the press. And you are telling me
that this may be used for you as a for-profit entity, and shown
to the public?
Ms. Disney. Perhaps, and believe me, it will be part of a
larger not-for-profit--
Mrs. Wagner. Again, going back, and I will yield back my
time, but as the ranking member, currently, Congressman
Hollingsworth has said, it would certainly be appropriate in
the future if the Full Committee has--is aware of this, these
goings on, and can certainly--
Chairwoman Maloney. Your objections have been noted, and in
the interest of time, I think we should move forward.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mrs. Wagner. Do you see this?
Mr. Davidson. Thank you, Madam Chairwoman. I thank our
witnesses. And as a point of clarification, am I to understand,
Madam Chairwoman, that the only public record of this isn't
really public; it is privately owned by Ms. Disney or whomever
she has contracted? There is no record provided by C-SPAN on
this?
Chairwoman Maloney. That is my understanding, that this
hearing is not being filmed by C-SPAN for some reason.
Mr. Davidson. Move to adjourn.
Mr. Sherman. The committee has a--
Chairwoman Maloney. Okay. Move to table.
Mr. Sherman. Move to table.
Chairwoman Maloney. Okay. All those in favor of tabling,
say aye. Aye. All those opposed, say no. No.
Voice. Parliamentary inquiry.
Chairwoman Maloney. In the opinion--
Voice. --adjournment. That is not proper.
Chairwoman Maloney. The ayes have it--in the opinion of the
Chair, the ayes have it.
Mr. Stivers. You cannot table an adjournment, Madam
Chairwoman. You have to vote on it.
Chairwoman Maloney. Well, let's--all those in favor of the
move to adjourn, say aye. Aye. All those opposed, say nay. Nay.
In the opinion of the Chair, the nays have it.
Would you--Mr. Davidson is now recognized.
Mr. Davidson. Thank you, Madam Chairwoman. As a further
point of clarification, is there a record that can be made
public that is provided by the committee and not C-SPAN?
Chairwoman Maloney. It is online.
Mr. Davidson. Thank you, Madam Chairwoman.
Chairwoman Maloney. All right. Mr. Davidson, are you going
to continue with your questioning?
Mr. Davidson. Yes. So as my time rapidly burns away for
nonproductive activities, we would like to talk a little bit
about productive activities, which is how do we make America
continue to be the world's land of opportunity? We see that
every day, because people from around the world want to come to
the United States. Personally come. They want to move their
companies here. They want to move their capital here. They want
to put their intellectual property here. What is increasingly
true, is, they do not want to go public here, particularly
small companies don't want to go public here, and while I can't
endorse all of the recommendations of this paper, I believe the
research on the topic is important, and I would ask unanimous
consent that this paper for the Harvard Kennedy School by
Marshall Lux and Jack Pead be submitted into the record.
Chairwoman Maloney. Without objection, it is so ordered.
Mr. Davidson. I think the debate here is really, in some
way, about who owns the capital. So if someone owns the capital
of a company, they are a single shareholder and they decide,
let's go public and share in this upside of the company, we
will get the capital to scale it. That has historically been
the reason that they go public. But as we have the debate here,
as my colleague, Mr. Hollingsworth, pointed out, we are looking
at socializing that. And not even socializing it for the people
who actually own the shares or own the capital, but because we
vote here in Congress that somehow you don't actually own the
capital, that you don't actually have the discretion of what to
do with your company, that the board couldn't possibly be
trusted to set the compensation package for the officers and
directors of the corporation. And you couldn't possibly trust
the officers and directors of the corporation to compensate
their employees. That you couldn't possibly trust private
owners of capital with the decision of whether or not to buy
shares and at what price to buy them.
So as my colleague pointed out, if you don't want to call
this socialism, I suppose you can call it something else,
central planning, Marxism, neo-Marxism, something that takes
away the private ownership of capital. So I look forward to the
words that define it, but it certainly isn't the path that made
our country the world's land of opportunity.
Our country has outperformed the world in every rational
metric with respect to capital formation. We have the best
markets for goods, services, capital, intellectual property,
and historically, for people. But I was intrigued as my
colleague, Mr. Sherman, talked about labor and the labor
market. We need to create labor shortages. We have the lowest
unemployment on record for every demographic that we track it
for, and we increasingly track it by an amazing number of
parsed definitions of identity. And it is the lowest on record
for everything that we can track. And at the same time that is
true, these socialist ideas for forming, and gaining traction
with a certain segment of our society, including people who are
benefiting greatly.
And so, Ms. Corzo, you touched for a little bit in your
testimony regarding private equity, and since you have raised
the topic, I heard recently that there is a private equity-
funded project at the JFK Airport that is putting 4,000 union
members to work and will create 8,000 permanent union jobs upon
completion. Can you tell us how many AFL-CIO workers are
currently employed by private equity-backed funds?
Ms. Corzo. When we talk about private equity, the reason
that we are concerned is because of the impact on the economy--
on workers, on pension plans, and on the excessive risks that
we are seeing in the corporate debt markets as a result.
So, while it is true that there are some union members who
are employed by private equity-owned companies, the reality is
that the strategy we see, time and again, when private equity
firms--
Mr. Davidson. So, reclaiming my time. Is the purpose here
to grill America's economy or to grill the union workforce? And
the reality is not just union workforces, the entire American
workforce is benefiting from this era of prosperity. My time
has expired.
Chairwoman Maloney. The gentleman's time has expired.
Without objection, and consistent with past committee
practices that have allowed filming at the request of a
witness, the cameraman associated with one of the witnesses is
permitted to film this hearing.
The gentleman from Illinois, Mr. Foster, is recognized for
5 minutes.
Mr. Foster. Thank you, Madam Chairwoman, and thank you to
our witnesses.
Ms. Disney, the paths of your family's company and mine
crossed about 40 years ago when, I guess, I was about 25 years
old. I designed and programmed the control system for the
Disneyland Main Street Electrical Parade. And that was one of
the first big contracts for our company, which is something
that my brother and I started in our basement with $500 from my
parents. And our company is big and successful. It employs over
1,000 people today and manufactures in the Midwest, which is
something I am very proud of. But our companies are actually--
the companies of our families have gone down different roads in
recent years.
You describe a path that you are not completely happy with,
that your family's company has gone down. In our case, we have
chosen an employee-stock ownership plan, an ESOP, where you get
an equity stake by the workers in their company. And I was
wondering, you know, I see a lot of merit in this. I see it not
only in sort of a social justice point of view, but also in
just the enthusiasm that the employees have in the continued
survival and thriving of your company.
So I was wondering if any of the witnesses, Mr. Clifford or
anyone else, has a comment on the ESOP model as a way to try to
better align the incentives of the corporation and the workers?
Ms. Disney. Disney had an employee stock ownership program
which has gradually dissipated, and has ultimately disappeared,
especially for workers at the lowest level. It has been pushed
more generously and more uphill than it has ever been. And the
important thing to note here is, we are having kind of this
parallel conversation about what is good for investors, and
what is good for people who work. And it is important to note
that 80 percent of stocks are held by 10 percent of Americans.
So, yes, it is wonderful that capital markets move
unrestrained, and no one is suggesting socialism, and no one is
suggesting a one-size-fits-all--and it is an absurd suggestion
to say that we are--but what we are saying is that, yes, boards
cannot be trusted to compensate well and fairly for the reason
that most of the people monitoring that compensation are CEOs
or want to be CEOs, and they will not peel off from orthodoxy
about compensation. They can't be trusted to increase
diversity. There are more CEOs named John in the Fortune 500
than there are women CEOs overall. So we know that--
Mr. Foster. Thank you. Do any of our other witnesses have
any comments on ESOPs?
Ms. Corzo. There are certainly benefits of ESOPs in terms
of alignment of interests between the workers and the other
share owners. There are also complications that can arise. I
think from a worker perspective, when a worker is choosing how
they are compensated, clearly cash is the best form of
compensation.
In addition to this, there are examples that will often
make workers somewhat concerned about employee stock ownership.
Mrs. Axne mentioned her tenure with the Tribune company, this
is an example where an ESOP was not successful and the workers
felt like they ended up on the losing end of the deal. And so,
there are a lot of tricky complications that can come into
play, but clearly, when we have so much money that is being
allocated to shareholders, giving workers a stake in that would
be helpful.
Mr. Clifford. When they work, they are a thing of beauty,
but they are very hard to pull off, as you undoubtedly know.
Mr. Foster. Yes, you have to be very careful that the
workers understand the risks of future performance of the
company and then--
Mr. Copland. Yes, just to clarify, we have seen ESOPs in
certain industries, particularly those with hostile union
relations, there are significant risks to an ESOP in the sense
that the worker is already at risk of losing his or her job,
but if you wrap their pension up with the company, too, you
could put their retirement security in the same place. We saw
that with the collapse of Enron, where a lot of workers were
invested in the company.
So there are problems with it, and just generally there is
a reason why we have share ownership versus employee ownership.
I would recommend to the committee Professor Henry Hansmann's
book, ``The Ownership of Enterprises,'' which goes through
employee-owned and other sorts of ownership structures and
explains sort of why that is. It is too complicated to get in
here.
Mr. Foster. Ms. Gilbert, I was interested in your comments
having alluded to the looming problem of robots taking
everyone's jobs, basically, and so is there a concern here that
by effectively making--adding expenses to human workers that
someone--that a CEO faced with a choice of either making an
investment in human resources, or just buying new hardware,
that you will be pushing things in the direction of hardware
that displaces jobs, rather than creates them?
Ms. Gilbert. Yes. Thank you for your question. This is the
concern that I was hoping to raise in my testimony. Currently,
we don't have the data available to be able to study this issue
at the individual company level. But as all of you know, this
is really a national issue. If we think about our national
economy as an aggregate of all of the individual companies in
it, then if we were able to get better data about worker
turnover--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Foster. I yield back.
Chairwoman Maloney. The gentleman from Wisconsin, Mr.
Duffy, is recognized for 5 minutes.
Mr. Duffy. Thank you, Madam Chairwoman. Welcome, panel.
There were, I think, 26 institutional investors or groups that
supported one of these bills that is being advanced by the
Majority on disclosure of human capital management. CalPERS,
CalSTRS, UAW, I think AFL-CIO is part of that as well. Does the
panel know whether CalPERS, UAW, and the AFL-CIO make the
disclosures that they are requesting of private corporations?
Ms. Corzo. I can tell you, from the AFL-CIO's perspective,
that we make extensive personal information about each employee
and their salary available in accordance with the Department of
Labor's request.
Mr. Duffy. But you recommended a set of standards for
public companies. Do you abide by the standards that you think
the public companies should abide by? Do you abide by those at
the AFL-CIO?
Ms. Corzo. We disclose a tremendous--
Mr. Duffy. That is not my question.
Ms. Corzo. --amount of information.
Mr. Duffy. Not my question.
Ms. Corzo. Also, we are not a public company.
Mr. Duffy. I know.
Ms. Corzo. We are not asking for investors. We are not
asking for capital--
Mr. Duffy. I will take your answer as, no, you do not. You
do not. UAW does not. We do not know the pay disparity. We
don't know the gender breakdown. We don't know the minority
breakdown. And I find it fascinating what is good for the goose
is not good for the gander.
Ms. Corzo. At UAW, we actually do know the pay disparity--
Mr. Duffy. I am going to reclaim my time. I think this is a
better place in the work that, Ms. Corzo, that you are involved
in, for shareholder initiatives. Let the owners of the
companies decide. You can bring forward an initiative. Have a
vote. But to have this dictated from Congress, I have a
fundamental disagreement, and there are a lot of priorities
that come before public companies. Let them have a vote. This
is a democracy. But to mandate this by the Congress, I have a
fundamental disagreement.
And I would just note in regard to pay--and this might be
different in different parts of the country--in my community,
over the last 2 years, there are so many jobs. We have more
jobs available than people to fill the jobs. And so if you are
a minority, if you are a woman, or if you are anybody else, and
you are not being treated fairly, you are not getting
compensated fairly, guess what, you pack up and go down the
street, and you do get compensated fairly. Because another
company will snatch you up and hire you and pay you your worth.
It is happening all over my community, to the frustration
of employers that there is poaching of the workforce. One
second, I am going to get to this other point. I apologize, and
you can answer when I come over to you. But you all are here,
most of you are here, in regard to public disclosure. We want
public disclosure.
So, Mrs. Maloney, I can tell you that she makes $174,000 a
year, and so does everybody else up here. It's pretty tough for
any of these other people to make any more money. So to the
panel--Mr. Clifford, let's start with you--how much do you
make, not just on your salary, but on your investments? I can't
wait to get to Ms. Disney.
Mr. Clifford. I don't have a salary. I don't work. I am
retired.
Mr. Duffy. Your investments, then.
Mr. Clifford. On my investments--
Mr. Duffy. You can take out Social Security.
Mr. Clifford. On my investments and my board fees, about
$450,000 a year.
Mr. Duffy. Ms. Corzo?
Ms. Corzo. I am not going to disclose my personal income.
Mr. Duffy. You are not going to disclose? Surprising.
Ms. Disney?
Ms. Disney. Somewhere in the range of $5 million to $6
million, but I also give away about $7 million to $8 million a
year.
Mr. Duffy. Say that one more time?
Ms. Disney. Somewhere in the range of $5 million to $6
million annually. I also give away $7 million to $8 million
annually.
Mr. Duffy. Because you are worth about half a billion
dollars? Is that fair?
Ms. Disney. No, I am not worth half a billion dollars.
Mr. Duffy. Then the news reports might be wrong.
Ms. Gilbert?
Ms. Disney. Oh, they are so wrong.
Mr. Duffy. Ms. Gilbert?
Ms. Gilbert. The owners of my firm are fully aware of my
compensation, and that is what we are asking of publicly traded
companies.
Mr. Duffy. So you don't want to share that here. Okay.
Mr. Copland?
Mr. Copland. I am not going to tell you.
Mr. Duffy. Interesting.
Ms. Disney, so obviously you have incredible wealth. I
would imagine that you probably have--
Ms. Disney. Dr. Disney, thank you.
Mr. Duffy. What is that?
Ms. Disney. Dr. Disney.
Mr. Duffy. Dr. Disney, yes. Do you have people who work for
you in your home?
Ms. Disney. Yes.
Mr. Duffy. Someone who maybe cleans your home?
Ms. Disney. Yes.
Mr. Duffy. Maybe cares for your pets?
Ms. Disney. Yes.
Mr. Duffy. How much do you pay them? At the lowest level,
the lowest-paid employee.
Ms. Disney. Something in the range of $75,000 a year,
something like that.
Mr. Duffy. So you are making $6 million and you are paying
$75,000. And that is the lowest salary that you give someone in
your home?
Ms. Disney. I think so, yes.
Mr. Duffy. Okay.
Ms. Disney. Yes. Do you think that is an unfair wage to pay
a domestic worker?
Mr. Duffy. I don't know. You tell me. In San Francisco, it
may be.
Ms. Disney. I will tell you that it is the highest I have
ever--
Mr. Duffy. For the record, I would note that it is
fascinating we want disclosures, but in our unions, we are
unwilling to disclose the amount that we make.
Chairwoman Maloney. Excuse me, the gentleman's time has
expired.
Mr. Duffy. I find it troubling.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Duffy. And I will yield back.
Chairwoman Maloney. The gentlewoman from Iowa, Mrs. Axne,
is recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman. I have heard a lot
of discussion today about the burden that these disclosures
could put on companies, and let's be very clear, companies are
already looking at this information. And the ones who are
operating the best are using this to their full advantage, and
that is for their investors, their stockholders, and their
employees. I spent 18 years of my career working on many of
these same issues in public companies, as well as State
Government. And companies are already tracking these metrics,
the majority of the metrics that we are actually asking for.
This bill is all about balancing a company's incentives to
maximize short-term profits with the need to reinvest in their
workforce and their company for the long-term. I know it works.
Our top business schools know it works, which is why they offer
and promote majors in human capital management and
organizational development. I hope all of my colleagues believe
that business schools, like my alma mater, Northwestern's
Kellogg School of Management, aren't selling our businesses a
bill of goods. Because I don't think they are. They are
promoting these studies because they benefit businesses. And
research shows that how you manage your people has long-term
effects on profitability.
So, Mr. Copland, you said in your testimony that there is
little reason to believe that such disclosures are material to
a profit-maximizing investor. I think SEC Chairman Clayton
might disagree, as he has indicated several times that he would
like to see more disclosure on human capital management.
And then, I also have research from Lancaster University
showing that U.S. companies that disclose their investment in
human capital have outperformed those who don't.
And so, I would like to ask you, Ms. Gilbert, as a
portfolio manager, can you explain how these disclosures will
help you maximize returns on your fund?
Ms. Gilbert. I would like to point to some of the specific
items that have been requested. Coming back to the disclosure,
for example, around workforce diversity that has been discussed
during the hearing already, as a portfolio manager, we think
about how this information can help to drive business success.
And we believe when it comes to workforce diversity, that
having different voices around the table helps to drive
strategy in a significant way.
I have completed studies that focus on this issue. For
example, with regard to board diversity, because that data is
available, as Mr. Copland mentioned, but there is no reason to
think that that wouldn't drive success at the level of the
team.
Another data item, for example, that has been discussed is
compensation. When I have studied compensation issues for
corporations, I actually think about it as an investor, as an
issue of leadership signaling. There are, essentially, agency
issues that can arise between a company's CEO and board, and
the shareholders of the firm, where we want to be sure that
they are maximizing the benefits of all stakeholders, including
the shareholders relative to themselves. One way that we can
measure this is how they are compensating themselves relative
to others in the company. So those are just a couple of
examples of how we believe that we can use human capital
management data to be better, more successful investors.
Mrs. Axne. Thank you, Ms. Gilbert.
Moving on, I want to make sure I thank Senator Peters for
the work he has done on the Outsourcing Accountability Act. I
appreciate all the feedback that my colleagues have given today
on this legislation, and I look forward to working with
everyone on both sides of the aisle on these bills.
Ms. Corzo, would you say that the public has accurate
information about where public companies are creating jobs?
Ms. Corzo. No.
Mrs. Axne. Okay. And would you say this bill would provide
information and make it more likely that we would invest in
American jobs?
Ms. Corzo. I think so. I think information is critically
important here. I think that for two reasons, actually. The
first is that what gets measured, gets paid attention to,
within a company. And so the process of reporting itself will
force the folks, at the senior-most levels within the firm, to
look at the data. And then they will also have to think about
what is going to happen on their quarterly earnings calls with
analysts, and what the questions will be that they will be
asked. And so, I think that the process of disclosing that
information, of preparing the disclosures and thinking about
how it is going to be communicated, will help to impact the
behavior. I don't think it is the single silver bullet that
will solve the problem, but I do think it will be helpful.
Mrs. Axne. Thank you. And I have 20 seconds left, about. I
would just like to impress on my colleagues the importance of
moving forward these bills. In particular, as we continue to
build a knowledge-based economy, it is incredibly important to
value that asset, and we are overlooking that in many ways, and
this will help with it. Thank you.
Chairwoman Maloney. The gentleman from Illinois, Mr.
Casten, is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman.
Mr. Copland, a couple of quick questions. What percent of
U.S. equities are held by foreigners?
Mr. Copland. I am not certain. I could get back to the
committee on it.
Mr. Casten. Does anybody else on the panel know the answer
to that question? In terms of the total capital in U.S.
companies' equity, and that it is about 30 percent. Given that,
when we give a dollar of money from the U.S. Treasury to
corporations in the form of a tax cut, Mr. Copland, and they
use that for stock buybacks or paying down dividends, what
percentage leaves the country?
Mr. Copland. I would question the premise that a tax cut is
a gift away of a dollar. But clearly, if 30 percent of the
owners are foreign, then 30 percent of the beneficiaries would
be foreign.
Mr. Casten. Okay. I wanted to make that point, because your
comment that share buybacks are good for U.S. companies
presumes that only Americans own U.S. companies, and it simply
isn't true, and those trends are increasing.
Mr. Clifford, in your piece in The Atlantic, you had
mentioned that a CEO provides guidance and oversight, but it is
the typical employee who is actually the one producing a good
or service. Can you talk a little bit about why it is that over
2 decades of productivity growth, the gains from productivity
growth have overwhelmingly gone to the executive suite, while
medium wages have stayed basically stagnant?
Mr. Clifford. It is very simple. The boards have adopted a
certain way of paying CEOs. As I said, it is a very complicated
system, but it starts with, you assemble a peer group. There
are always other very highly paid CEOs. Then your board pegs
you at the 75th percentile of that peer group. I have never
seen anybody paid below the 50th percentile. Then you have a
series of bonus targets, and if you surpass those bonus
targets, you make more than the 75th percentile. So you end up,
you know, you are in a pretty good negotiating position. You
have all the information as CEO. So you end up making probably
2\1/2\ times your target.
Now, here is the beauty of that. That then goes back into
the peer group of all your other peers. They get a raise next
year just because you get a raise. You get a raise the year
after because they got a raise. So you have this system that,
with mathematical certainty, produces 10 percent increases in
CEO pay.
Now, this works only at the CEO level. They would never
apply this cockamamie system to anybody else. Everybody else
gets 4 percent, and because they are all using the system, the
CEO gets 10 percent, 12 percent, year after year. And you just
turn the cranks, and the 12 percent shoots right out. That is
why you have it.
Mr. Casten. Thank you.
Moving to Ms. Gilbert, there has been this long shift
towards shareholder capitalism and aligning compensation with
equity performance, and that is not without its merits. It
certainly keeps people aligned. But most of my career was as a
CEO. So I am familiar with how these things can be gamed,
particularly when you have options that are--with strike prices
below the listing price of the stock. The CEO, as you all know,
has essentially a one-way bet, and they don't share any of the
downside exposure that the investors have, but have tons of
upside potential.
Can you help us quantify how prevalent that trend is, and
in your capacity, in your role, how might we either fix that
from a board governance perspective, or in the absence of
leadership from a board governance, from a regulatory
perspective that this committee would have jurisdiction over?
Ms. Gilbert. I am sorry to say that I haven't had the
chance to study this in detail, so can't quantify for you the
prevalence. But with regard to strategies for changing the
patterns around shareholder primacy, one important focus would
be to begin to find ways to train capital markets,
shareholders, and leaders, to focus on longer-term goals,
longer-term performance. And this can be built directly into
the compensation plans themselves.
Part of the problem that you are describing, you talk about
the option, it is not just the strike price that is part of the
option. It is also the time horizon, as you know. So I believe
that if we are able to train our goals on longer-term issues,
longer-term focus, that it would change all of the other
behaviors underneath.
Mr. Casten. Thank you. I yield back my time.
Chairwoman Maloney. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank
you for holding this extremely important hearing. Thank you all
to all of our witnesses here today. It is so important that we
talk about some of these issues.
So, folks consistently bring up this term stock buyback--
stock buyback, stock buyback. But a lot of folks don't really
understand what this really means. So let's break it down.
Ms. Corzo, let's say I am the CEO of a major corporation.
Let's say I am the CEO of a big pharmaceutical company, or a
big retailer like Toys ``R'' Us or Sears, a company that is big
enough and developed to the point where it can be traded on the
stock market. So you can buy and sell shares of Toys ``R'' Us
or Merck or what have you. My first question is, is it common
for CEOs to have their pay tied to stock price?
Ms. Corzo. Absolutely. And as Mr. Clifford was just
explaining, that is typical and when--typical supply and
demand. Right? When you buy stock, the supply goes down, the
price goes up. And then a lot of the metrics that go into the
calculation help increase the pay.
Ms. Ocasio-Cortez. So it is exceedingly common for CEOs of
these major corporations to have their pay tied to the stock
price. So, great. So I am the CEO, my compensation package is
based on the performance of the stock price. And I think it is
fair to say that that means I am incentivized to make that
stock price as high as possible, right? If I want a huge
payday, I need to make sure that this stock price on the Dow
Jones, on the Nasdaq, is as sky high as possible. And to
clarify, stock price doesn't always immediately or directly
correlate to the actually value of the product that I am
selling, correct? So it is not as though my product is getting
more valuable if the stock price increases, right?
Ms. Corzo. Right.
Ms. Ocasio-Cortez. Okay. Good to know. And it generally can
create a situation where it prioritizes the interest of the
shareholders more than the actual consumers of the product, or
even the employees of the company.
Ms. Corzo. Absolutely.
Ms. Ocasio-Cortez. All right. So let's say I am, again, the
CEO. I am ruthfully incentivized to make sure that we get the
stock price as high as possible. And usually that means just
increasing profit for shareholders. So I need to find a way to
build this margin. So let's say I take away healthcare from my
workers, right? I can make a huge killing making sure that we
don't pay for anybody's healthcare. Let's take their insurance
away. Or, let's just say, hypothetically, I get a slew of
hired-gun lobbyists to buy up Members of Congress to secure the
largest tax cut in the history of the United States, so I get a
big chunk from that.
So now, okay, I have that money. Let me take my CEO hat
off. But in real life, my dad ran a small business. And
whenever we had a good year in the small business, we tried to
pay our secretaries more, or we tried to invest more in things
for the business. But as the CEO of a major company, I can take
that money, and I don't have to do that at all, right? I can
actually have the company buy its own stock on the market,
right?
Ms. Corzo. Yes.
Ms. Ocasio-Cortez. So let's say if I am a big pharma CEO, I
can go, take this money, take people's healthcare away, take
that margin and buy my own stock on the Nasdaq, and that would
effectively increase the stock price, right?
Ms. Corzo. Yes.
Ms. Ocasio-Cortez. And I have done nothing to change my
company, I have done nothing to make my product more valuable,
my employees more happy. I haven't invested in the training or
the workforce to make the company inherently more valuable, but
I have inflated the stock price, right?
Ms. Corzo. Absolutely, right.
Ms. Ocasio-Cortez. So my question is, how is this different
from a pyramid scheme?
Ms. Corzo. No, it is--that is a very good question. It is a
concern that I think a lot of people talk about when we talk
about financialization. This is the concept that we are seeing
so much in our economy. When there is a lot of effort going
into driving up stock prices, driving up the value of financial
assets, that does nothing for the real economy.
Ms. Ocasio-Cortez. And I think that has an additional
expense, because when you look at, for example, the GOP tax
scam, about 60 percent of all of those proceeds went to stock
buybacks, and now today, we are being told that GDP is at an
all-time high, but GDP tends to be indicators of company and
corporate value. Is that correct?
Ms. Corzo. Yes.
Ms. Ocasio-Cortez. So it is possible that our GDP numbers
are going up without any actual value added to our economy, is
that correct?
Ms. Corzo. That is correct.
Ms. Ocasio-Cortez. All right. Well, that is concerning.
Dr. Disney, just one last question. You, again, you are--my
mistake. Your grandfather was the co-founder of the Walt Disney
Company, correct?
Ms. Disney. Yes.
Ms. Ocasio-Cortez. And as you indicated earlier, the CEO
was paid $65.6 million, even though the median salary is
$46,000. Do you agree with that?
Ms. Disney. Yes.
Chairwoman Maloney. The gentlewoman's time has expired.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman.
Chairwoman Maloney. The gentleman from Illinois, Mr.
Garcia, is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman. And I
would like to thank all of the witnesses who have testified
this morning.
Some questions for the panel. Ms. Corzo, you mentioned in
your testimony the problems that buybacks at Walmart and
General Electric have caused the workers at those companies. Of
course, it isn't just those companies that have spent their
funds or buybacks rather than in jobs and growth. Earlier this
year, Joe Olson, an AT&T employee, testified before the Senate
that the company has spent $16.5 billion on buybacks since
2013, and spent more on buybacks last year than it has in
several years, even as AT&T has cut 23,000 jobs.
Since the passage of the Corporate Tax Act, AT&T has laid
off 2,300 call center workers in the Upper Midwest, where I am
from, alone. So it seems like these problems are widespread
across corporate America. In that context, should this
committee consider eliminating the safe harbor that currently
exists for stock buybacks, as proposed in Senator Baldwin's
Reward Work Act?
Ms. Corzo. Yes. The AFL-CIO and Americans for Financial
Reform have both endorsed that bill. And I would add that one
of the things that is particularly attractive is that it puts
workers on board, in addition to addressing the stock buybacks.
Mr. Garcia of Illinois. Upon introducing the Reward Work
Act earlier this year, Senator Baldwin, her staff issued a
report that found that, ``Buybacks suppress wages, drive income
and wealth inequality, decrease investment, increase systemic
risk, harm retirement savers, and jeopardize capital formation
by allowing speculators to extract value from public
companies.'' I ask for unanimous consent to enter this staff
report into the record.
Chairwoman Maloney. Without objection, it is so ordered.
Mr. Garcia of Illinois. Thank you. One powerful example of
this extraction cited in the report is the case of activist
investor Carl Icahn, who purchased 3.4 billion shares in 2013
and 2014, and from other shareholders, then successfully
demanded that Apple accelerate its stock buybacks again,
selling his newly, more valuable shares at a $2 billion profit.
As the report notes, ``Apple calls its buyback program, the
Capital Return Program,'' yet the company isn't returning cash
to shareholders like Icahn, because they haven't given the
company anything. Icahn sold his Apple shares after holding
them for 32 months, for a $2 billion gain. This example
illustrates how activist investors use stock markets to take
cash out of company, rather than supply companies cash to put
to productive use, rewarding the wealth of the activist, not
the work of the employee who generated the profits in the first
place.
Ms. Corzo, can you comment on how common examples of
extractive behavior like Icahn's are?
Ms. Corzo. Unfortunately, I am not able to quantify that,
but it is very commonplace. It is a common strategy that we see
among private funds quite a bit. We hear a lot from private
fund managers that the reason that they make so much money is
because they have some sort of special miracle way of getting
into a business and finding the way to drive value creation,
when in reality, a lot of what we are seeing is wealth
extraction. And there is an important difference, because value
creation is what makes our economy profitable in the long-term,
what drives real economic growth that helps all members of our
society to live better lives, whereas value extraction only
benefits those at the very top. And that is a lot of the type
the strategy that we are seeing from these activists investors,
which are typically hedge funds.
Mr. Garcia of Illinois. And in my 30 seconds that are left,
I want to ask you, is it, in your opinion, in the long-term
interest of pension funds and other investors that are supposed
to look out for the long-term interests of workers and other
investors that they represent to engage in this?
Ms. Corzo. Absolutely not. A pension fund is looking out
for returns not just today, but 40, 50 years from now. We need
to provide further time and security of our members, corporate
strategies that will drive profitability over decades to come,
not just the next quarter.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman.
Chairwoman Maloney. The gentleman from Minnesota, Mr.
Phillips, is recognized for 5 minutes.
Mr. Phillips. Thank you, Madam Chairwoman. And thanks for
the invitation to join this subcommittee hearing today, and to
our witnesses.
In the spirit of full disclosure, I am a capitalist, an
entrepreneur, a recovering CEO myself, someone who has co-owned
two consumer brands that I think most Americans are quite
familiar with, and also someone who believes that business can
and should be a means to an end. The end should not be the
aggregation, rather the sharing with the people and the
communities that make success possible.
So that is why I believe that wealth and income disparities
are a great threat to our country. And recognizing the data,
the real average wage in this country is about the same as it
was 40 years ago. In 1965, the average CEO-to-employee
compensation ratio was 20-to-1. Now it is 312-to-1.
Which would mean that my fellow Members of Congress and I
would each be making $18 million right now if we applied the
same ratio. I would love to know what American citizens would
think of that number. I hazard a guess.
My first question, though, to each of you is a simple one,
and just a yes-or-no answer. Do you believe that growing wealth
and income disparities pose an economic and social risk to our
country?
Mr. Clifford?
Mr. Clifford. Yes.
Ms. Corzo. Yes.
Ms. Disney. Yes.
Ms. Gilbert. Yes.
Mr. Copland. No and yes, depending on which question you
are talking about. Economic, no; social, yes.
Mr. Phillips. Economic, no, and social, yes.
Mr. Copland. Economic, no; social, yes.
Mr. Phillips. So, Mr. Copland, you might know, in your
opening remarks, you mentioned that the propositions that we
are considering may well retard economic growth in the United
States of America.
My bill is a very simple one, the Greater Accountability in
Pay Act. It is all about transparency. So let me know, how does
transparency pose an economic threat to the United States of
America?
Mr. Copland. Because you are asking the wrong question with
the wrong metric. And, therefore, you are going to have,
exactly as I discussed earlier in the hearing, you are going to
have situations where a company that contracts out is going to
have very different ratios than a company that has workers in-
house.
So the actual ratio you are talking about--and we have seen
the same thing with the aggregate static pay ratio bill that
was added in the Dodd-Frank Act, the rule that was promulgated
after that. But what you are talking about is going to
exacerbate that, because you are actually talking about raises,
you are talking about year-over-year changes. And those are
going to fluctuate widely at the top due to the equity
compensation that institutional investors have driven on
corporate boards.
Mr. Phillips. Then let me than ask you a follow-up
question. What do you believe, what thoughtful policies should
we be considering to provide incentives to American
corporations, public and private, to share more with their
employees, the people who make success possible?
Mr. Copland. I don't think that is a useful strategy for
economic growth, is the answer, because--
Mr. Phillips. Let me just clarify. So sharing more is not a
recipe for economic growth?
Mr. Copland. Paying workers more than the marginal utility
of their labor is not a strategy for a business to grow. And
ultimately what you will be doing is, if you are overpaying
your workers more than their marginal productivity of labor,
you are going to be losing business to foreign competitors or
to other competitors not subject to that rule.
Mr. Phillips. And that is not my--my question is incentives
for businesses, public and private, to share more. What policy
should--
Mr. Copland. ``Share'' is a very nebulous term there.
Mr. Phillips. Okay.
Mr. Copland. But if what you are talking about is driving
up employee compensation relative to marginal productivity of
labor, relative to what is paid in a competitive labor market,
then you are driving down the competitiveness of the company,
which is in the longrun going to retard the economic growth of
the country.
Mr. Phillips. So your argument is that the status quo is in
the best interest of the future of the country?
Mr. Copland. I am not saying the status quo. I have
criticized the status quo a lot of times. But I think what you
are proposing is to go in the exact wrong direction.
Mr. Phillips. Okay. Simply exposing the increase in pay
amongst executives at a public corporation with those of their
own employees, that is--that is not just--
Mr. Copland. Well, it is fine.
Mr. Phillips. Okay.
Mr. Copland It is just not just a useful metric that is
material to investment.
Mr. Phillips. Okay.
Do any other witnesses here today have any thoughts on what
we should be considering to provide incentives to share more
with employees?
Ms. Disney. I would just love to just spend a minute with
the idea of the marginal utility of labor.
We have been talking in parallel lines about this whole
thing. We have been talking about what investors need and then,
in a completely separate way, talking about what workers need.
And these should not be separate and independent issues.
We need to restructure what we measure and what we
understand about the purpose of business and the purpose of an
economy so that labor's interests are not inherently in
conflict with what investors need.
So the marginal utility of a toilet being scrubbed, I would
argue, is actually high. You can't run your business without
that. And to make a person work 8 to 10 to 12 hours a day
scrubbing toilets and ask them to go home with not enough money
to feed their families is just on its face a ridiculous way for
an economy to be structured.
Mr. Phillips. I agree. And thank you, Dr. Disney.
I yield back.
Chairwoman Maloney. The gentleman's time has expired.
Before we wrap up, I would like to take care of one
administrative matter.
Without objection, I would like to submit letters and
statements to the record from the Council of Institutional
Investors; from Public Citizen; from Dr. Anthony Hesketh; from
a group of academics, including Lori Foster, Dan Ariely, and
David van Adelsberg; and an article by Mr. Hill from Arkansas.
And I would like to thank our witnesses for their testimony
today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned. Thank you.
[Whereupon, at 12:08 p.m., the hearing was adjourned.]
A P P E N D I X
May 15, 2019
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