Quibble: this is true, it's called a Compulsory Mechanical License, but those rates are sufficiently high that the Sex Pistols probably saw little money from that song.

This isn't that terrible though. Most of the time, covers use a negotiated royalty rate instead, where the performer does significantly better than the Compulsory rate, which provides a floor. And if you really don't want to negotiate, you can still cover the song.

Interestingly, at about the same time you and I were living in Canada, Weird Al's parody of Queen "Another One Rides the Bus" appeared on the charts there and then vanished, and the rumor at the time (in Ottawa) was that Queen had sued them.

Of course, now I know about Compulsory Mechanicals, I looked it up, and in fact it was record label problems unrelated to IP. Apparently it barely registered on Queen's radar, except that Brian May commented in an interview that it was "very funny".