On October 25, 2019, Abigail Hess writes on CNBC Make It:
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Income inequality in the United States is bigger than ever.
A report from the Institute for Policy Studies highlights just how extreme pay inequality is between CEOs and workers.
The IPS analyzed pay data at S&P 500 companies and found that nearly 80% of S&P 500 companies paid their CEO over 100 times more than their median worker pay. Nearly 10% of companies paid their median workerbelow the poverty line for a family of four which is approximately $27,000 in the United States.
Among the 50 publicly traded companies with the widest CEO-to-worker pay gaps in 2018, the typical employee would have to work at least 1,000 years to earn what their CEO made in one. The IPS reports that among these companies, 88% of median workers were considered part-time, and 31% worked in “low-wage” countries such as China and Mexico.
These 50 companies with the largest CEO-to-worker pay ratios include 24 blue-chip corporations, and they span sectors. Three of the companies with the largest gaps in pay are in the automobile industry, five are in tech hardware, five are in fast food and 14 are in retail.
The IPS found that Walmart has a CEO-to-worker pay gap of 1,076 to 1, claiming that Walmart CEO Doug McMillon made $23,618,233 in 2018 while the median pay for a Walmart worker was closer to $21,952 that year.
But IPS found that retail giant Gap had the widest CEO pay gap of any S&P 500 company. Gap’s CEO Art Peck reportedly makes $20,793,939 — 3,566 times as much as the company’s typical worker which is just $5,831, due in part to the fact that the company employs a large number of seasonal employees.
Peter Drucker, often considered the father of modern management science, believed that a healthy CEO-to-worker pay ratio was around 25-to-1.
Gap responded to CNBC Make It with a statement:
Gap Inc.’s CEO pay ratio largely reflects the composition of our employee base. Of our approximate 135,000 employees, about 100,000 of them are sales associates, of that number, 97% are part-time. Our median employee for fiscal year 2018 is a part-time sales associate in Maryland who made $5,831 last year.
Gap Inc. is proud of the opportunities we provide our associates. We pay all of our associates competitively. Given the composition of our workforce, we do not believe the pay ratio calculation required by the SEC provides a complete picture of our compensation practices – nor does it reflect the high value we place on our employees.
As the country’s largest private employer, Walmart’s large scale puts the behemoth retailer in a similar position as Gap.
Representatives for Walmart say the ratio does not capture the additional ways that Walmart compensates employees, such as benefits, nor the pay increases Walmart has implemented over the past several years.
“If you look at the ratio, what we believe is missing is the level of investment we’ve made in our associates over the past few years to increase wages and develop training and education programs that allows them to build a career,” Randy Hargrove, senior director of national media relations for Walmart tells CNBC Make It. “We’ve invested $4.5 billion in multiple programs, and we’ve raised our starting wages in the U.S. by more than 50% in the last four years.”
The CEO-to-worker pay gap is just one of many ways to measure inequality.
The U.S. Census Bureau uses what is called the Gini index to measure income inequality. The Gini index ranges from 0 to 1, with a measure of 1 indicating “perfect inequality” (one household having all the income and the rest having none) and a measure of 0 indicating “perfect equality” (all households having an equal share of income).
According to a Sept. 26 analysis from the Census Bureau, the Gini index across the United States increased from .482 in 2017 to .485 in 2018, and nine states saw significant growth in income inequality: Alabama, Arkansas, California, Kansas, Nebraska, New Hampshire, New Mexico, Texas and Virginia.
In a paper titled “The new gilded age: Income inequality in the U.S. by state, metropolitan area, and county” for the Economic Policy Institute, co-authors Estelle Sommeiller, a socio-economist at the Institute for Research in Economics and Social Sciences in France, and Mark Price, a labor economist at the Keystone Research Center, stress that the issue of inequality impacts workers across the country.
“Rising inequality affects virtually every part of the country, not just large urban areas or financial centers,” Sommeiller tells CNBC. “It’s a persistent problem throughout the country — in big cities and small towns, in all 50 states.”
