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At Major US Corporations, Employees Would Have to Work 1,000 Years to Earn What CEOs Made in One: Report

"Tax penalties on extreme CEO-worker pay gaps would encourage large corporations to narrow their divides."

A fast-food worker strike in Minnesota

The CEO-worker pay gap for McDonald's Corp last year was 2,124-to-1, according to the Institute for Policy Studies. CEO Stephen Easterbrook made more than $15 million while the company's workers average $7,473. (Photo: Fibonacci Blue/Flickr/cc)

"At the 50 publicly traded U.S. corporations with the widest pay gaps in 2018, the typical employee would have to work at least 1,000 years—an entire millennium—to earn what their CEO made in just one."

That's according to Executive Excess 2019: Making Corporations Pay for Big Pay Gaps, a new report from the Institute for Policy Studies.

The IPS report (pdf) was published Monday, the same day as Democratic presidential primary candidate Sen. Bernie Sanders (I-Vt.) unveiled his plan to raise the corporate tax rate for companies that pay CEOs at least 50 times more than median workers.

For the country's top 50 public companies with the most sizable pay gaps last year, the median worker pay averaged just over $10,000 while median CEO pay averaged $15.9 million, says the IPS report, which relied in part on federally required disclosures.

Other key findings from the report include:

  • Among S&P 500 firms, nearly 80 percent paid their CEO more than 100 times their median worker pay in 2018, and nearly 10 percent had median pay below the poverty line for a family of four.
  • S&P 500 corporations as a whole would have owed as much as $17.2 billion more in 2018 federal taxes if they were subject to tax penalties ranging from 0.5 percentage points on pay ratios over 100:1 to 5 percentage points on ratios above 500:1.

The firms with the widest pay gaps span various industries, from retailers and apparel manufacturers to fast food, technology, and auto companies. Among the worst offenders: Telsa, with a 40,668:1 pay gap; Abercrombie & Fitch Co., with a 3,660:1 gap; Mattel, with a 3,408:1 gap; Align Technology, with a 3,168:1 gap; and Yum China Holdings, with a 2,731:1 gap.

Others on the top 50 list include Gap, Chipotle Mexican Grill, Williams-Sonoma, McDonald's Corp., Estee Lauder Companies, Foot Locker, Walt Disney Co., Norwegian Cruise Line, T-Mobile, Ralph Lauren, Barnes & Noble Education, Walmart, Starbucks, The Coca-Cola Co., and AMC Entertainment.

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The IPS report asserts that massive pay gaps between workers and chief executives help drive U.S. inequality, undermine business efficiency and effectiveness by sapping employee morale, and endanger both democracy and the economy.

An annual Economic Policy Institute analysis published last month found that the average take-home pay of chief executives at the largest 350 U.S. companies in 2018 was $17.2 million, 278 times that of the average worker. Federal data released last week showed that income inequality in the United States hit its highest level ever recorded in 2018, contrary to President Donald Trump's recent claim that "inequality is down."

Similar to Sanders' plan, IPS proposes using taxation to help prevent exorbitant CEO pay and combat rising U.S. inequality. According to the report:

Tax penalties on extreme CEO-worker pay gaps would encourage large corporations to narrow their divides—by lifting up the bottom and/or bringing down the top of their wage scales. 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.

These tax penalties have even greater currency in light of the 2017 Republican tax legislation, which slashed the corporate tax rate from 35 to 21 percent. Republican leaders promised that corporations would invest their windfalls to boost working families. Instead, U.S. companies announced a record-setting $1 trillion in stock buybacks, a maneuver that serves only to enrich wealthy shareholders and top corporate executives.

Tax penalties targeting CEO-worker pay gaps "build on the living wage movement," Executive Excess lead author Sarah Anderson said in a statement Monday.

The report details some ways in which the tax money generated from specific companies could be used:

What CEO pay gap taxes on specific firms could finance

Sam Pizzigati, the report's co-author, suggested Monday that in addition to funding specific government policies and programs, taxing firms for large pay gaps could have added societal benefits.

"Outrageous CEO compensation gives CEOs an incentive to behave outrageously," he said. "More equitable corporate compensation patterns would help discourage the sorts of scandalous behaviors we've seen in everything from the financial meltdown a dozen years ago to today's opioid crisis."

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