How Taxpayers Subsidize Giant Corporate Pay Gaps

Sarah Anderson

Sarah Anderson Director, Global Economy Project at the Institute for Policy Studies

The typical American believes CEO pay should run no more than six times average worker pay. Top business experts, meanwhile, have shown that much wider income divides undercut efficiency by lowering employee morale and boosting turnover. And yet every year billions of dollars in taxpayer-funded federal contracts and subsidies continue to flow to corporations with extremely wide pay gaps.

This report: How Taxpayers Subsidize Giant Corporate Pay Gaps analyzes CEO-worker pay gaps at top federal contractors and subsidy recipients, finding that more than two thirds of the top 50 federal contractors and corporate subsidy recipients paid their CEO more than 100 times their median worker pay in 2017.

Here are some of the key findings from this report:

Comparing federal government pay with contractor and subsidy recipient pay

  • More than two-thirds of the top 50 federal contractors and the top 50 federal corporate subsidy recipients paid their CEO more than 100 times their median worker pay in 2017. By contrast, the U.S. president’s salary equals just five times the pay of the average federal government employee. The typical American believes CEO pay should run no more than six times average worker pay.

Top 50 contractors

  • In 2017, 34 of the 50 publicly held U.S. firms that received the most lucrative federal contracts paid their CEOs over 100 times the pay of their median employee. Federal contracts to these 34 firms totaled $167 billion.
  • All 50 top contractors paid their CEOs more than 25 times their median worker pay, the widest gap that modern management science founder Peter Drucker felt appropriate.
  • The Geo Group, which runs immigrant family detention centers, took in $663 million in Justice Department and Homeland Security contracts in 2017. Geo CEO George Zoley pocketed $9.6 million that year, 271 times more than his company’s median employee pay of $35,630.

Top 50 subsidy recipients

  • Among the 50 publicly held firms that received the largest federal subsidies last year, 33 paid their CEO more than 100 times as much as their median worker. Federal subsidies to these 33 firms totaled $1.4 billion. All but three of the 50 firms had ratios larger than 25 to 1.
  • American Airlines received more than $16 million in subsidies in 2017, a year that saw CEO Doug Parker receive $12.2 million, 195 times the firm’s median worker pay. A 2018 survey found that 27 percent of employees at American Airlines subsidiary Envoy Air have to rely on public assistance to make ends meet.

Corporations with the largest pay gaps

  • YUM! Brands is benefiting from a $7.25 million taxpayer-backed loan from the Overseas Private Investment Corporation to finance the expansion of KFCs and Pizza Huts in Mongolia. The fast food giant paid its CEO 1,358 times as much as its median employee in 2017.
  • Walmart, the go-to source for government purchases of everything from TVs and doughnuts to consumer-unfriendly $5 gift cards, paid half of its 2.3 million employees less than $19,177 last year. The company’s CEO made 1,188 times that amount.
  • These and other low-wage employers also benefit enormously from indirect subsidies, since a large share of their workers earn so little they have to rely on public assistance.

Ending subsidies for extreme pay gaps

  • Building on pay ratio data available for the first time this year, an emerging new movement is seeking to use the power of the public purse to rein in the pay of top executives and lift up compensation at the bottom of the corporate income scale.
  • In Oregon this past January, the city of Portland began collecting revenue from the world’s first tax penalty on corporations that pay their CEO more than 100 times their median worker pay.
  • In Congress and states and cities around the country, policymakers are considering similar proposals that would use tax, contracting, and subsidy policies to discourage extreme gaps within large U.S. corporations.

Read the full report here [PDF].


Reposted from Institute for Policy Studies

Posted In: Allied Approaches

Union Matters

Federal Minimum Wage Reaches Disappointing Milestone

By Kathleen Mackey
USW Intern

A disgraceful milestone occurred last Sunday, June 16.

That date officially marked the longest period that the United States has gone without increasing federal the minimum wage.

That means Congress has denied raises for a decade to 1.8 million American workers, that is, those workers who earn $7.25 an hour or less. These 1.8 million Americans have watched in frustration as Congress not only denied them wages increases, but used their tax dollars to raise Congressional pay. They continued to watch in disappointment as the Trump administration failed to keep its promise that the 2017 tax cut law would increase every worker’s pay by $4,000 per year.

More than 12 years ago, in May 2007, Congress passed legislation to raise the minimum wage to $7.25 per hour. It took effect two years later. Congress has failed to act since then, so it has, in effect, now imposed a decade-long wage freeze on the nation’s lowest income workers.

To combat this unjust situation, minimum wage workers could rally and call their lawmakers to demand action, but they’re typically working more than one job just to get by, so few have the energy or patience.

The Economic Policy Institute points out in a recent report on the federal minimum wage that as the cost of living rose over the past 10 years, Congress’ inaction cut the take-home pay of working families.  

At the current dismal rate, full-time workers receiving minimum wage earn $15,080 a year. It was virtually impossible to scrape by on $15,080 a decade ago, let alone support a family. But with the cost of living having risen 18% over that time, the situation now is far worse for the working poor. The current federal minimum wage is not a living wage. And no full-time worker should live in poverty.

While ignoring the needs of low-income workers, members of Congress, who taxpayers pay at least $174,000 a year, are scheduled to receive an automatic $4,500 cost-of-living raise this year. Congress increased its own pay from $169,300 to $174,000 in 2009, in the middle of the Great Recession when low income people across the country were out of work and losing their homes. While Congress has frozen its own pay since then, that’s little consolation to minimum wage workers who take home less than a tenth of Congressional salaries.

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