Why Dodd-Frank Hasn’t Fixed CEO Pay

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Back when the financial crisis hit, there were few things more irritating to Americans than seeing huge bonuses go to the top dogs at big corporations. Two years later, and apparently nobody cares.

98.5% of companies that put their executive pay plans up for a vote by shareholders have received a resounding ‘a-ok’, the Wall Street Journal reports. The votes, of course, weren’t inspired by big companies themselves. They grew out of the Dodd-Frank financial overhaul, which took on the issue of executive pay after the finance wizzes at AIG used their $170 billion in bailout money to pay themselves $165 million in bonuses, which, needless to say, ticked off the American public. (Wizzes indeed.) So why, in the wake of a massive downturn that left a boatload of Americans with paltry paychecks or no job at all, didn’t shareholders put up a fuss when they finally got the chance? After all, some 80% of Americans still think CEO pay is too high, according to a recent Bloomberg poll.

There are a bunch of reasons. First, let’s just re-visit how corporate pay got so wildly out-of-whack in the first place. In 1965, the average CEO in the U.S. got paid 24 times as much as the average worker. In 2007, CEOs got paid 275 times the average bean counter. Why? Mostly because CEOs get a lot of say in their own pay, since they tend to choose their own directors and chair the board that figures those kinds of things out.

But what about the shareholders? They, in theory, are supposed to be able to rein in the big boy back-patting, since shareholders have the power to elect and un-elect the directors who ultimately decide on pay. And when totally dissatisfied, they can simply dump their shares. But it’s worth remembering that, in aggregate, shareholders’ interests aren’t necessarily the same as yours and mine, even though many of us happen to be shareholders. Why? Because for the most part, we don’t tend to invest directly in stocks. Instead of sifting through the balance sheets of Apple, Walmart, and John Deere to see who’s doing things as we see fit, we outsource that task to big institutions like mutual funds, pension funds, and employee stock-ownership plans. Roughly two-thirds of all stock is owned by institutions rather than individuals, and for some company stock the share can be as high as 80 or 90%. Those institutions try not to bridle at bad corporate behavior, especially the wish-washy pecuniary variety, because they end up paying a high price in time and legal fees to fight back, without gaining as much from any resulting boost in the stock price. Mutual fund companies also want to keep things cozy with the companies they invest in, because they make more money selling those firms 401K plans than they do selling individual funds to you and me.

In this light, it’s not hard to see why shareholders have continued to take a backseat on CEO pay. But, with corporate profits on the rise, it might be hard to see why this is even a problem. The point of CEO pay, after all, is to reward good performance, and companies on the whole are doing pretty well. And when the company does well, it eventually flows back to you and me in the form of greater wealth and more jobs, right? Not so much.

Some studies show that companies with lower payouts to big execs do better than companies that pay a lot more. That’s partly because short-term incentives like stock options and bonuses can drive a CEO to make decisions that drive up a stock price in the short-term, which drives up their pay, but run the company into the ground in the long run (hello Lehman Brothers). Things haven’t panned out on the jobs front either. Roughly 88% of U.S. growth went to corporate profits in the wake of this recession, while a piddly 1% went to jobs and worker pay, according to a recent Northeastern University study. That’s nearly double the share that went to corporate profits after the recession of the early 2000s, and a fraction of the share (15%) that went to jobs and worker pay. So where’s the payback? The stagnant wages of middle America could in theory hurt American companies’ reputations, as well as that whole capitalist shtick about the promise of upward mobility. Those reputations aren’t suffering yet. But if consumer spending and jobs growth don’t start to pick up, CEOs will have more to worry about than reputation. They’ll be hurting their bottom line.

Roya Wolverson writes for TIME. Find her on Twitter at @royaclare. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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