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

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