Naked Capitalism readers are familiar with the fact that CEO compensation exploded starting in the 90s, and that this explosion was related to a shift towards companies providing compensation in the form of stock options. A major cause of the shift was Bill Clinton’s 1993 move to make executive comp deductible from corporate income taxes only when given as stock options.
Let’s say that one more time: a small change in tax law, spearheaded by Bill Clinton, provided the initial impetus for the runaway rise in CEO comp, itself plausibly a significant driver of our own era’s lopsided distribution of economic gains.
The basic history has been described elsewhere, for example here, but new details emerged from a Wednesday article by Robert Reich, who participated in the key meetings. While running for president, Clinton had promised to end the tax deductibility of executive pay over $1 million. According to Reich, this pledge led to considerable consternation on the part of Clinton’s economic team.