[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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