WASHINGTON — When CEOs of seven of the largest banks testified recently before the House Financial Services Committee, Democrats leading the panel were interested in more than the institutions' risk levels and how they treat their customers. They also shined a spotlight on the executives' salaries.
But Democrats' focus on bank CEO salaries has spurred its own debate. Some observers said attention to executive pay will grow leading up to the 2020 election, but others said Democrats zeroing in on banks misses the point: CEO pay is high in all industries, and banks do a better job compensating lower-level employees than other sectors.
“Income inequality is at record levels,” said Aaron Klein, economic studies policy director at the Brookings Institution. “Norms of employment between management and front-line workers have radically changed."
Yet many view a discussion about bank CEO compensation as having limited impact. They compare the issue to disputes that have devolved into attempts merely to score political points, similar to the growing debate over the proper meanings of terms like socialism and capitalism.
Brian Gardner, director of Washington research at KBW, said focusing on banker compensation is risky for Democrats.
“It probably is more politics in some parts of the country and not others,” Gardner said. “In Democratic strongholds, it probably plays well. But in those swing districts that Democrats picked up and got their majority, it probably doesn’t play well.
“They voted for centrist Democrats who tend to be more pragmatic. I don’t think attacking a CEO over their pay will strike a chord with voters in those districts as addressing the country’s problems.”
At the House hearing, several Democratic lawmakers sharply criticized some of the executives over the differences in salaries between the C-suite and elsewhere.
“According to the bank's 2019 proxy statement, the median compensation for employees at Citi was $49,766,” Rep. Nydia Velazquez, D-N.Y., said to Citigroup CEO Michael Corbat. “As a result, Citigroup has the dubious distinction of having the largest discrepancy between CEO compensation and median employee salary of any of the institutions present here today, a remarkable 486-1 ratio.”
Rep. Katie Porter, D-Calif., raised a similar concern with JPMorgan Chase CEO Jamie Dimon, questioning how some employees at the firm, depending on their living situations, still face budget shortfalls.
She used the example of a single mother earning $16.50 an hour at JPMorgan Chase and living in a $1,600-per-month apartment, and asked Dimon how the employee should make up a budget shortfall.
“I don’t know, I’d have to think about it,” Dimon said.
Porter said while Dimon knows "how to spend $31 million a year in salary," he "can't figure out how to make up a $567-a-month shortfall."
“This is a budget problem you cannot solve,” she said.
The questions put bankers on the defense, with Dimon arguing that the banks represented at the hearing compensated employees fairly.
“This group pays all their employees quite well including medical, retirement, minimum wage is usually at $18, $37,000 a year, something like that,” Dimon said at the hearing. “Competitive business will drive wages and jobs over time.”
Later in the week, Dimon said on a conference call after the bank
“We take very good care of our entry-level jobs: $35,000 to $37,000 per year, medical, retirement,” he said, according to published reports. “When you’re looking at wages, you better look around at other people. The banking industry is pretty good.”
Republicans on the committee came to the executives' defense. After Porter's questioning of Dimon, Rep. Lee Zeldin, R-N.Y., said the Democrat's point about the JPMorgan Chase employee mischaracterized how the bank treats personnel.
“I took a couple minutes to look through some of the benefits of working at JPMorgan,” Zeldin said. “I was looking at health insurance, dental, vision, 401(k)s, life insurance. There was child care benefits, there were pretax benefits to take care of expenses and the list goes on. And I think it’s unfair to come here and to be grilled like that when you’re the only one in her hometown providing an opportunity to that woman.”
Klein said the Democrats' criticism at the hearing would have been the same if executives from other industries were testifying.
"If you’d had the seven CEOs from pharmacy, from big pharma or big oil, I think you’d have the same sets of questions,” he said.
But there could be a more specific reason why the issue came up at a financial services hearing, said Milan Dalal, a former senior Democratic House and Senate staffer.
Incentive-based compensation packages were seen by some as a contributing factor to the financial crisis, and the 2010 Dodd-Frank Act required regulators to write standards for such packages. But federal agencies
“One of the central reasons for the focus on executive compensation was the frustration Democrats have with the inability of federal financial regulators to complete the executive compensation rulemakings mandated by Dodd-Frank nine years after the passage of that law," said Dalal, of counsel at Brownstein Hyatt Farber Schreck.
Others see the debate about income disparities between corporate executives and rank and file as a microcosm of a broader national debate about bridging the gap between the wealthy and the middle class.
But the two political parties see both issues through different lenses.
"Republicans are going to call" the Democratic presidential nominee "a socialist and the Democrats are going to call Republicans an uncaring tool of corporations,” said Kyle Kondik, managing editor of Sabato's Crystal Ball at the University of Virginia's Center for Politics. “I think there is almost a tendency for Republicans to look at companies as altruistic and Democrats don’t feel that way.”
Gardner said bank employees likely don’t view starting or midlevel salaries as a point of frustration, despite the compensation packages for people at the top.
“I think if you ask workers at a lot of the banks if they are envious, are they resentful, generally they would say no. … Most workers around the country tend not to be envious,” Gardner said. “I think this line of attack from Democrats is trying to appeal to a segment of the voters that is envious."
While the debate may be tied to corporations more broadly, not just a single industry, Kondik the big banks are still an easy target for Democrats in Congress given their role in the financial crisis.
“I think that stems from this idea that ultimately not enough people were held accountable for what happened,” Kondik said. “Democrats are clearly the party that is more interested in strongly regulating financial institutions.”
