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ceo worker pay gap
Wealthy Corporations Are Cheating Ordinary Americans Twice
This chart looks at the 10 firms in that group of 35 that shelled out the most in executive compensation. As you can see, they include many household names, such as Tesla, T-Mobile, Netflix, and Ford.
How Did Things Get so Wildly out of Control?
Big corporations have used their enormous economic and political power to push Congress to slash rates and blow huge loopholes in our tax code. They get to fleece Uncle Sam, and the rest of us get stuck with the bill.
According to Americans for Tax Fairness analysis of Bureau of Economic Analysis data, the effective corporate tax rate—what firms actually pay as a percentage of their earnings—in the middle of the last century was around 50% to 54% when including state and local taxes as well. As of 2022, the corporate rate was just 17%.
Another damning indicator of our broken corporate tax system: the disconnect between profits and tax revenue. For decades, corporate profits as a share of the economy have been generally rising. Higher profits should lead to higher tax revenue, but they have not. Instead, according to Bureau of Economic Analysis data, the gap between U.S. corporate profits and corporate taxes as a share of GDP doubled between 1980 and 2022.
Corporate Tax Dodging and Excessive Executive Pay Are Interrelated Problems
CEOs have a personal incentive for hiring armies of lobbyists to push for corporate tax cuts. Why? Because the windfalls from those cuts often wind up in their own pockets. It’s hardly surprising that as corporate contributions to federal tax revenue have plummeted, CEO pay has skyrocketed, leaving typical worker pay far behind.
According to Institute for Policy Studies analysis of Office of Management and Budget and Economic Policy Institute data, when corporate taxes made up 21.8% of all federal revenue in 1965, the average CEO-to-median worker pay ratio was 21 to 1. By 2022, corporate tax receipts had fallen to just 8.7% of federal revenue and the average pay ratio had risen to 344 to 1.
In the immediate aftermath of the 2017 tax law, America’s largest corporations used windfalls from this legislation to boost executive paychecks through a record-breaking stock buyback spree. Stock buybacks artificially inflate the value of a company’s shares–and the value of the stock-based pay that makes up the bulk of executive compensation packages.
In 2018, the first year of the Trump-GOP tax cuts, S&P 500 firms plowed $806 billion into stock buybacks, a massive jump from $519 billion in 2017. And buyback spending has stayed sky-high every year except the first year of the pandemic.
Ordinary Americans are getting cheated twice. Corporate tax dodging deprives the nation of billions of dollars in revenue that could be used to improve public infrastructure and services. At the same time, exorbitant executive pay siphons money from worker wages, R&D, and other productive investments to support a strong economy.
See our full report for ideas on how to make corporations pay their fair share of taxes. The Institute for Policy Studies has also co-published with the Congressional Progressive Caucus Center a summary of practical proposals for reining in CEO pay, from tax and contracting reforms to stronger regulations on stock buybacks and Wall Street bonuses.
Until we fix our tax and executive pay systems, we’ll never have an economy that works for all of us.
Stock Buybacks Widen the Worker-CEO Pay Gap
CEOs could watch cat videos all day and still reap huge windfalls through stock buybacks.
The Low-Wage 100
A new Institute for Policy Studies report, Executive Excess 2023, reveals how these financial shenanigans have widened disparities at the 100 S&P 500 corporations with the lowest median worker pay, a group we’ve dubbed the “Low-Wage 100.”
Between January 1, 2020, and May of this year, these companies reported a combined $341 billion in stock buyback spending.
Lowe’s led the buybacks list, plowing nearly $35 billion into share repurchases over the past three and a half years. In 2022 alone, Lowe’s spent more than $14 billion on buybacks—enough to give every one of its 301,000 U.S. employees a $46,923 bonus.
The idea that the person in the corner office is hundreds of times more valuable than other employees is a myth—even if that person is not just watching cat videos.
I’m guessing rank-and-file Lowe’s employees, half of whom make less than $30,000 per year, could find more productive uses for that money.
During their stock buyback spree, Low-Wage 100 CEOs’ personal stock holdings increased more than three times as fast as their firms’ median worker pay. At the 65 buyback companies where the same person held the top job between 2019 and 2022, the Low-Wage 100 CEOs’ personal stock holdings soared 33% to an average of $184.7 million. Median pay at these firms rose only 10% to an average of $31,972.
FedEx founder and CEO Frederick Smith has the largest stockpile in the Low-Wage 100. With $3.6 billion in stock buybacks since January 2020, Smith’s personal stock holdings have grown 65% to more than $5 billion. By contrast, median pay for workers at the notoriously anti-union company fell by 20% to $39,177 during this period.
Taxpayer Support for Huge CEO-Worker Pay Gaps
What makes all this even more upsetting? Taxpayers are actually supporting, through federal contracts, the buyback-fueled disparities at FedEx and 50 other Low-Wage 100 firms.
FedEx pocketed $6.2 billion in fiscal years 2020-2023 for mail services for the Veterans Administration and other agencies. The largest federal contractor in the Low-Wage 100 is another company known for union-busting—Amazon. Over the past few years, Amazon has pocketed more than $10 billion in web services deals from Uncle Sam while spending nearly $6 billion repurchasing their shares.
Fortunately, support is growing for solutions to our CEO pay problem.
Solutions to Executive Excess
Before 1982, stock buybacks were viewed as market manipulation and largely banned. President Joe Biden hasn’t yet called for reinstating that ban, but he did rail against buybacks in his State of the Union address this year and called for quadrupling a new 1% excise tax on share repurchases.
The Biden administration is also starting to use federal money going to corporations as a lever for change. In an important first step, the administration is giving preferential treatment in the awarding of new semiconductor manufacturing subsidies to companies that agree to give up buybacks. Now they should extend that policy to all corporations receiving taxpayer money.
Buybacks are not the only trick CEOs can use to inflate their own paychecks. Over my decades of research, I’ve documented how corporate leaders have used myriad shady means to hit personal jackpots, from cooking the books and moving executive bonus goalposts to creating housing bubbles and other reckless financial schemes.
To tackle this systemic problem, policymakers need to go bolder. Executive Excess 2023 offers an extensive menu of CEO pay reforms. One of the most innovative: tax penalties for companies with huge CEO-worker pay gaps. Two major cities—San Francisco and Portland, Oregon—are already generating significant revenue through such taxes. Seattle is now considering a similar approach.
The idea that the person in the corner office is hundreds of times more valuable than other employees is a myth—even if that person is not just watching cat videos. All employees contribute to the profits of a corporation, and our economy would be far healthier if the fruits of our labor were more equitably shared.
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