Published: Sept 30, 2019 4:53 p.m. ET 25
The Institute for Policy Studies report coincides with Bernie Sanders’s income inequality tax proposal
This is rich.
For the past two years, publicly held corporations have had to disclose the ratio between the compensation of their CEOs and the median compensation of their employees under the 2010 Dodd-Frank financial reform act. And while few American CEOs pocketed more than 40 or 50 times their worker pay back in the 1960s and 70s, according to the Institute for Policy Studies’ new “Executive Excess 2019” report, nearly 80% of S&P 500 firms paid their CEO more than 100 times their median worker pay last year.
In fact, it would take the typical worker at one of the 50 public companies with the widest pay gaps an entire millennium to earn what their CEO makes in a single year. The latest report by the Institute for Policy Studies, which has researched executive compensation for 25 years, found that the median CEO pay at these 50 companies averaged $15.9 million last year, while the median worker earned just $10,027.
In fact, 10% of workers at S&P 500 firms (in 49 companies) earned less than the $27,005 poverty line for a U.S. family of four last year. That means at least 3.7 million employees at these companies didn’t earn a living wage to keep a family out of poverty. But the median 2018 CEO pay at these 49 places was $12.3 million.
The report came the same day that Democratic presidential candidate Bernie Sanders proposed his new Income Inequality Tax Plan to penalize both publicly and privately held companies with wide wage gaps between CEOs and employees. Companies who pay their CEO (or highest paid employee, if not the CEO) more than 50 times their median worker would be taxed at 0.5 percentage points, and the tax would rise incrementally until capping at 5% for companies who pay their CEO 500 times more than the average employee.
While the revenue would be used to pay for Sanders’s plan to eliminate medical debt, the tax plan’s real purpose is “send a message to corporate America: stop paying your workers inadequate wages while CEOs make outrageous compensation packages,” according to Sanders’s website.
The complementary IPS “Executive Excess” report released Monday also supported a penalty tax to shrink the income gap, and called out several businesses that “pay poverty wages while their CEOs make millions,” including Gap Inc. GAP, +1.61%, Ulta Beauty ULTA, +2.56% and Chipotle CMG, +2.64%. It also noted that while Twitter TWTR, -0.36% and Google’s GOOGL, -0.39% CEOs take home “nominal annual paychecks,” their founders are “sitting on massive stashes of company stock.” Most of these companies either declined to comment, or did not respond to MarketWatch requests for comment by presstime. A Chipotle representative noted that CEO Brian Niccol’s $33.5 million compensation package was based on a competitive analysis of CEO pay levels in his peer group, and included a cash sign-on award and unvested equity awards forfeited by his previous employer.
The report also name-checked several companies with especially wide wage gaps between CEOs and regular joes, including Mattel MAT, +1.20%, whose CEO took home $18.7 million last year — 3,408 times as much as the company’s median employee. And the CEO of the company that makes Invisalign ALGN, +2.89% braces made 3,168 times as much as his firm’s median employee, an associate engineer in Mexico earning $13,180. Other companies called out for pay gaps above 1000 to 1 include McDonald’s MCD, +0.73%, Disney DIS, +0.28%, T-Mobile TMUS, +1.56%, and more.
A Mattel spokesperson told MarketWatch that CEO Ynon Kreiz’s $18.7 million salary includes a one-time, new-hire performance-based stock option grant valued at approximately $4.4 million to $5 million. The other businesses declined to comment or didn’t respond by presstime.
The report also suggested hypothetical ways that revenue from a penalty tax on companies with some of the highest CEO to median worker pay ratios could help the general public. For example, Walmart WMT, +0.19%, with a pay gap of 1,076 to 1, would have owed as much as $794 million in extra federal taxes last year with Sanders’s tax penalty in place. The federal government could have extended food stamp benefits to 520,997 people for an entire year with that windfall, according to the report. Or CVS CVS, +1.59% — with a 618-to-1 ratio — could reportedly have added a revenue stream big enough to provided annual Medicare prescription benefits for 33,977 seniors.
Walmart rep Randy Hargrove told MarketWatch that the company has raised its U.S. starting wages by more than 50% in the past three years, and the average total compensation and benefits for hourly associates are more than $17.50 an hour. “At Walmart, it’s about moving people beyond entry-level jobs by giving associates clearer career paths, skills-based training and more control of their schedule,” he wrote in an email.
CVS didn’t respond to a request for comment.
“Tax penalties on extreme CEO-worker pay gaps build on the living wage movement by encouraging corporations to lift up the bottom and bring down the top of their wage scales,” wrote Sarah Anderson, the lead author of the new IPS Executive Excess report. “Such reforms would also give a boost to small businesses and employee-owned firms and cooperatives that spread their resources more equitably than most large corporate enterprises.”
Gary Reber Comments:
In the world of public and private for-profit corporations, the controlling owners of the corporation appoint a Board of Directors, who in turn retain a Chief Executive Officer (CEO). Typically, CEO pay is largely wrapped in stock options, providing ownership stakes in the corporation and an incentive to increase the profitable performance of the corporation. Actual pay associate with the a CEO’s is far lower measured by salary. The largest segment of pay is typically in stocks and stock options.
While information on Mattel, which was mentioned in this article did not break down its CEO’s earnings, as for The Gap, Inc., the company behind Old Navy, Banana Republic, and Gap clothing brands, Arthur Peck, the company’s CEO earned $20.8 million in 2018 with $1.5 million in salary, and the remainder in company stocks and stock options. Peck earns as much in about a half hour as a typical employee’s yearly earnings, as most Gap employees are compensated primarily through wages and salaries. Employees are not owners.
Our political leaders as well as those who are often in the spotlight because of their wealth have failed to focus any discussion on what policies and system reforms are necessary to create inclusive prosperity by universally broadening the ability to generate income through personal ownership of productive capital and the inclusive opportunity to become a capital owner.
Unfortunately, the vast American majority only understand earning an income via employment and are unable to make reductions in consumption to accumulate savings and speculate via purchasing existing stocks (legalized gambling), hoping for a financial gain when they sell the stock. They are excluded from purchasing new stock issues, representing new capital asset formation, with the earnings generated by the investment, without the requirement of past savings.
While the national focus is always on job creation instead of ownership creation, our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions such as CEOs, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success –– always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent is not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the goods, products, and services produced as a result of substituting “machines” for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.”
At one point in 1976, the discussion led to The Joint Economic Committee of Congress endorsing a policy to broaden capital ownership as an economic goal for America. The 1976 Joint Economic Report stated: “To provide a realistic opportunity for more U.S. citizens to become owners of capital, and to provide an expanded source of equity financing for corporations, it should be made national policy to pursue the goal of broadened capital ownership. Congress also should request from the Administration a quadrennial report on the ownership of wealth in this country, which would assist in evaluating how successfully the base of wealth was being broadened over time.”
Unfortunately the Congress and no past or present President have never paid any attention to this policy, and the goal has subsequently been unacknowledged and unheeded by our plutocratic political leaders.
Instead, the American people have been promised that if the wealthy ownership class could gain even more earnings through low taxes and deregulation, the savings would be reinvested to grow the economy and create more and better jobs and higher wages. The focus has always been on job creation and wage growth, while the rich get richer by invisibly accumulating more capital asset ownership.Of course, there is always some truth to the idea that new jobs will be created through reinvestment, but jobs are eliminated as well, as the reinvestment is increasingly directed to the formation of new, highly-efficient non-human technological means of production, requiringfar less workers and/or to extensions to other countries with lower labor costs and no or few regulations. Americans should be smarter and realize that this is an underhanded scheme for the already wealthy and their heirs to OWN America and further concentrate and monopolize ownership of ALL productive capital, present and future. Such “trickle-down” thinking does not work. As a result of such unworkable policies, fewer and fewer people remain good “customers with money” to buy what the economy is capable of producing. And even then, as consumers, the vast majority of Americans have gone into consumption debt in order to provide for themselves and their families. Americans increasingly do not feel secure and are being challenged as to how to survive, faced with mounting over-extended consumer credit as well as less and less job security to earn sufficient income to pay off their debt. Unnecessarily, millions of Americans are faced with losing their savings and homes, and their jobs –– and their dreams for a better life –– with no way to earn through owning the wealth-creating, income-producing productive capital now formed and that which will be formed in the future.
As history has confirmed, better earnings and better job prospects did not and will not trickle down by lowering taxes on the wealthy and the corporations they own or deregulating the rules of responsible production. Responsibly growing the economy simultaneously with creating new capital owners, and thus “customers with money,” is the ONLY way to achieve inclusive prosperity and economic justice.
Increasingly, more Americans will not be able to ever purchase a home, due to the packed inflationary wage and welfare base factored into the cost of building homes, which inflate prices, and will be forced to rent their entire life or depend on government living assistance — not able to accumulate equity that can help to sustain them in their retirement years. And this is the new reality now facing people in the middle class. The uncertainty of holding onto a good job is frightening to an increasingly wider base of middle-class working citizens. When you factor in the average non-salaried worker, even with a government-mandated minimum labor wage rate of $10.00 to $15.00 per hour in some states and cities, the outcome is grim. Never mind that consumer demand continues to dwindle because of insufficient income, solely tied to labor worker wages. The impact of the decline in consumer demand due to declining labor worker wages is that production will decline or desist without sustainable consumer demand. Furthermore, those corporations growing the economy, both nationally and globally, will expand globally with investment in new productive capital projects and seek “customers with money” abroad.
This is all coming about because we have severely mismatched the power to produce with the possession of unsatisfied needs and wants. Those capital owners who have unsatisfied needs and wants have ready access through conventional finance to get as much or more productive capital as they want. Our tax laws are designed to further benefit the 1 percent by providing enormous write-offs and credits to producers (corporations) who are owned by the few, who already produce more than they can consume. Those who have only their labor power and its precarious value held up by coercive rigging and who desperately need capital ownership to enable them to be capital “workers” as well as labor workers to have a way to earn more income, cannot satisfy their unsatisfied needs and wants. With only access to labor wages, the 99 percent will continue, in desperation, to demand more and more pay for the same or less work, as their input is exponentially replaced by non-human productive capital (“machines” of all description).
But if we change direction and systematically build earning power into consumers, we have the opportunity to reverse the depression perpetrated by systematically limiting the 99 percent to labor wages alone and through technology eliminating their jobs. We need solutions to grow the economy in ways that create productive jobs and widespread equity sharing. We need to systematically make insured, interest-free capital credit to purchase capital accessible to economically underpowered people in which the income from the capital investment is isolated until it pays for itself, and then begins to produce a stream of dividend income to the new capital owners. This can only be accomplished by enabling every person to have access to capital ownership and purchase the capital, and pay for it out of what the capital produces. It’s time good and well-intentioned people woke up and adopted a JUSTThird WAY paradigm (http://cesj.org/learn/just-third-way/) beyond the greed model of monopoly, “hoggist” capitalism and the envy model of the traditional welfare state. This will promote peace, prosperity, and freedom through harmonious justice.
Support the Agenda of The JUST Third WAY Movement (also known as “Economic Personalism”) at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/ and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
