Photo credit: DiasporaEngager (www.DiasporaEngager.com).
Introduction
At a time of intense political divisions, Americans across the political spectrum share enormous common ground on at least one problem facing our nation: the extreme CEO-worker pay gaps at our country’s largest corporations.
This report focuses on these big pay-gap companies. The 100 S&P 500 corporations with the lowest median wages — the Low-Wage 100 — last year paid their CEOs an average 538 times what they paid their most typical workers, we found.
Extreme pay disparities lower employee morale and productivity and raise turnover rates. They also widen gender and racial disparities, since women and people of color make up a disproportionately large share of low-wage workers and a tiny share of corporate leaders.
Can Americans transcend our differences and come together to tackle these obscene pay divides? Our Executive Excess report last year related how public outrage over corporate pay gaps is helping unions win strong new contracts at enterprises ranging from Detroit’s Big 3 automakers to major hotel chains. Employees at a Denver Live Nation concert venue have even cited our 2023 Executive Excess report as a powerful motivator for their successful union drive.
Policymakers are also taking steps to address widespread concerns over corporate pay patterns. But much more remains to be done. This year’s Executive Excess ends with a comprehensive policy menu for ensuring that corporate America more equitably shares the fruits of everyone’s labor.
The full findings are available in the report PDF. A summary follows.
Key findings
The average CEO-worker pay ratio at Low-Wage 100 firms narrowed from 603 to 1 in 2022 to 538 to 1 in 2023, but median pay levels remain extremely low.
- Workers at the bottom of the corporate ladder have been fighting hard for rewards that more fairly reflect the contributions of their labor. Their struggles since the pandemic have helped increase the Low-Wage 100’s average median worker pay by 9 percent, from $31,672 in 2022 to $34,522 in 2023.
- Average Low-Wage 100 CEO pay has dipped slightly, from $15.3 million in 2022 to $14.7 million last year.
- Ross Stores shows both the lowest median worker wage and the widest pay gap. In 2023, Ross CEO Barbara Rentler hauled in $18.1 million, 2,100 times as much as the $8,618 pay that went to her firm’s median compensated employee, a part-time store associate.
- Nike CEO John Donahoe II last year enjoyed the Low-Wage 100’s single largest compensation package. He raked in $32.8 million in 2023, 975 times as much as the athletic wear company’s $33,646 median pay.
From 2019 through 2023, the Low-Wage 100 spent $522 billion — over half a trillion dollars — on stock buybacks.
- Over the past five years, all but seven Low-Wage 100 firms “invested” in stock buybacks. Buybacks artificially inflate executive stock-based pay and siphon corporate dollars out of worker wages and productive long-term investments.
- Lowe’s led the Low-Wage 100 share buyback charge. The company spent $42.6 billion on buying back its own shares, a sum large enough to have given each of the firm’s 285,000 global employees an annual $29,865 bonus for five years. In 2023, Lowe’s CEO Marvin Ellison enjoyed total compensation of $18.2 million. The retailer’s median annual worker pay: a mere $32,626.
- Home Depot ranks second in our Executive Excess buyback rankings. The big box chain spent $37.2 billion on share repurchases between 2019 and 2023. That outlay would have been enough to give each of Home Depot’s 463,100 global employees five annual $16,071 bonuses. Home Depot median pay stands at just $35,131.
From 2019 through 2023, nearly half of Low-Wage 100 companies — 47 in all — plowed more corporate cash into buying back their own shares of stock than investing in capital improvements.
- Even some technology firms within the Low-Wage 100 last year spent far more on buybacks than on capital expenditures, such as equipment and tech upgrades. Johnson Controls, a producer of “smart building” technologies, has spent $8.8 billion more on buybacks than on CapEx over the past five years. Semiconductor manufacturer Analog Devices has spent $6.2 billion more.
- Lowe’s shows the largest buybacks-CapEx gap. The retailer spent $33.6 billion more repurchasing shares than making capital expenditures from 2019 through 2023. This represents a stunning corporate priority turnaround. Two decades earlier, from 2000 through 2004, the retailer spent nothing on stock buybacks.
The 20 largest U.S. employers in the Low-Wage 100 have spent — over the last five years — nine times as much on stock buybacks as on employee retirement plan contributions.
- Of these 20 leading low-wage employers, only Costco spent less on buybacks than on employee retirement plan contributions — and not by much. Costco allocated $2.1 billion to buybacks during this period and $2.4 billion to employee 401(k) plans.
- AutoZone sports the largest buyback-retirement benefits gap. From 2019 through 2023, the auto parts chain spent 92 times more on repurchasing its own shares than on employee retirement security.
- Chipotle ranks second on the buyback-retirement benefits gap list, spending 48 times as much on buybacks as on 401(k) plan contributions.
Runaway CEO pay continues to infuriate average Americans, and policymakers are beginning to respond to that anger
- Poll after poll continues to show widespread public outrage — across the political spectrum — over today’s extreme CEO-worker pay gaps. This growing anger is propelling both increased union organizing and lawmaker interest in cracking down on excessive CEO pay packages.
Recommendations
The full version of this report includes our most comprehensive summary yet of various policy fixes for extreme CEO pay disparities. In this summary, we look at some of the most promising avenues for legislation and executive action.
1. Tax and restrict stock buybacks.
The 2022 Inflation Reduction Act introduced a 1 percent excise tax on the repurchase of corporate stock. The 2024 Democratic Party Platform proposes quadrupling this excise tax, and a pending Senate bill, the Stock Buyback Accountability Act (S. 413), would meet this goal. The Reward Work Act (HR 3694) would institute a general ban on stock buybacks in the open market, a move that would largely return us to the pre-1982 status quo.
Biden has also included a proposal in his federal budget that would ban top executives from selling their personal stock for a multi-year period after a buyback, preventing CEOs from timing share repurchases to cash in personally on a short-term price pop they themselves have artificially created. A Senate bill, the ALIGN Act (S. 790), would ban executives from selling their shares within a year of a stock buyback announcement.
2. Subject corporations with excessive CEO pay to higher tax levies.
Higher tax rates on companies with wide CEO-worker pay gaps would create an incentive to both rein in executive pay and raise worker wages, all the while generating significant new capital for vital public investments. Laws that share those goals are already generating revenue in two major cities, San Francisco and Portland, Oregon.
Several related bills are also pending at the federal level, including:
- The Curtailing Executive Overcompensation (CEO) Act, which would apply an excise tax to companies that have above a 50:1 CEO-to-median-worker pay disparity. The tax would be proportional, so companies with a large pay gap would owe extra taxes — and if they also have extremely high CEO pay, they would owe even more. Had this bill been in effect in 2022, it would have raised more than $10 billion from the Fortune 100 largest U.S. companies alone.
- The Tax Excessive CEO Pay Act, which would tie a company’s federal corporate tax rate to the size of the gap between its CEO and median worker pay. Tax penalties would begin at 0.5 percentage points for companies that pay their top executives between 50 and 100 times more than their median workers. The highest penalty would apply to companies that pay top executives over 500 times worker pay. It would generate an estimated $150 billion over 10 years.
3. Use federal contracts and subsidies to discourage wide corporate pay gaps.
President Biden has flexed his executive powers in numerous ways to help working families. The Biden administration has, for instance, lifted the wage floor for certain federal contract workers to $15 per hour. And the administration has ordered large construction firms involved in public infrastructure projects to negotiate collective agreements with their workers. The Biden administration is starting to use these powers to crack down on buybacks as well.
The bipartisan CHIPS and Science Act forbids semiconductor subsidy recipients from spending CHIPS funds on stock buybacks. The Department of Commerce has also promised to provide preferential treatment in the awarding of grants to firms that commit to refrain from all stock buybacks for five years. To maximize the benefits of this program, the Biden administration should take advantage of its statutory authority to fully ban CHIPS grant recipients from engaging in stock buybacks.
The administration could also do much more to leverage the power of the public purse against extreme pay disparities. The Patriotic Corporations Act could serve as a model. This bill would grant preferential treatment in contracting to firms with CEO-worker pay ratios of 100 to 1 or less, among other benchmarks, including neutrality in union organizing. The Congressional Progressive Caucus has called on President Biden to introduce such incentives.
Source of original article: Institute for Policy Studies (ips-dc.org).
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