Daily Archives: June 9, 2022

The wage gap is still enormous

You’re probably wondering.  Wage gap?  Huh?

This isn’t a sexy topic, but it’s troubling, and it’s not the first time I’ve written about it.  There are certainly more compelling topics to discuss right now (e.g., gun safety, the persistence of Covid), but I want to focus on this today.

 Five years ago, in July 2017, I noted my concern with the CEO-worker wage gap [https://susanjustwrites.com/2017/07/31/random-thoughts-ii/].

What was bothering me?  The CEO “pay ratio” was standing at 271-to-1.

I was looking at the Economic Policy Institute’s annual report on executive compensation released on July 20, 2017.  According to that report, chief executives of America’s 350 largest companies made an average of $15.6 million in 2016, or 271 times more than what the typical worker made last year.

Yes, the number was slightly lower than it was in 2015, when the average pay was $16.3 million, and the ratio was 286-to-1.   And it was even lower than the highest ratio calculated, 376-to-1 in 2000.

But, as I pointed out, before we popped any champagne corks because of the slightly lower number, we had to remember that in 1989, after eight years of Ronald Reagan in the White House, the ratio was 59-to-1, and in 1965, in the midst of the Vietnam War and civil rights turmoil, it was 20-to-1.

In 2017, I wanted us to reflect on those numbers.  To think about how distorted these ratios were and what they said about our country.  I asked, “Did somebody say ‘income inequality’?”

Why am I writing about this issue again?  Because this week Andrew Ross Sorkin reported in The New York Times that the average pay gap between low-wage workers and the CEOs of their companies is still enormous.

Sorkin reported that, according to a brand-new study by the Institute for Policy Studies, the median pay for workers at companies that tend to pay low wages was, thanks to inflation,  up by 17 percent,.  But that raise was dwarfed by the rise in CEO pay, which rose by 30 percent at those same companies.  The lead author of the study “Executive Excess” noted, “this could have been a time when companies used rising profits to level the playing field.  Instead,” said Sarah Anderson, “we haven’t seen a very big shift in pay equity.”

Further, CEOs did even better at companies where salaries didn’t keep pace with inflation. The study looked at median workers’ wages at about a third of the firms in the study, firms whose wages did not keep pace with inflation.  The average CEO pay at those companies was up by 65 percent, or more than double the increase at all of the firms in the study.

One company in this group was Best Buy, where median pay fell two percent last year (to $29,999), while the CEO, Corie Barry, got a 30 percent pay increase to $15.6 million.  Barry may have done a bang-up job, but the huge difference in pay is pretty stark.

Hey, Best Buy, I just bought some stuff from you.  If I’d known that my purchases have led to this vast inequity in pay, I’d have thought twice about giving my business to you.  I don’t like to think that such a big chunk of your profits, including those derived from customers like me, went straight to your CEO instead of to your workers.

Is there any possibility for change?  There may be a glimmer of hope.  Sorkin’s report also noted that the SEC (Securities and Exchange Commission) could possibly move in that direction.  According to Sorkin, a group of former regulators (including two former SEC commissioners) have asked the SEC to issue new rules illuminating this disparity. 

The petition for this rule-change contends that “investors need more information about what companies pay workers,” and it urges the SEC to propose new rules requiring companies to disclose how much they’re investing in their workforces.

The two former SEC commissioners (Joseph Grundfest and Robert Jackson) have, in the past, often had opposing views.  They noted, “We differ in our views about the regulation of firms’ relationships with their employees generally.”  But, they added, “we all share the view that investors need additional information.”  The group stated that the current accounting and tax rules make “investing in machines more attractive than spending on humans.

Right now only about 15 percent of public companies disclose their labor costs. The proposed rules would require that companies disclose their labor costs (and no longer lump them in with other expenses).  They’d also require companies to provide detailed workforce compensation data, including information on the breakdown for contract, part-time, and full-time employees.

So we may be able to clearly see the current disparity in compensation.  If these new rules are endorsed by the SEC, we could see much more transparency in workers’ compensation because data revealing who earns how much would be revealed for everyone, including investors, to see.  

At least some investors could then make choices that would benefit workers’ compensation.

The goal is achieving greater equity.  I think that many if not most investors would welcome a move in that direction.  As Virginia’s Senator Mark Warner, who supports the petition, says, “No one can credibly argue that this type of disclosure wouldn’t be valuable or material to investors in a highly competitive, 21st-century, global economy.”