(Un)Equal Pay Day

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By Bill Barclay

Every year sometime in early April we reach the point where the average U.S. female worker has earned as much as the average male worker did in the previous year. It’s called “Equal Pay Day.”

But there’s another pay day we should be marking: the day on which the typical U.S. CEO of a large company receives as much compensation as the average worker will for the entire year. In 2016, that came very early: about lunch time on January 5th, the second work day of the year. The remaining 258½ days are gravy for the CEO. He – and it usually, although not always is a he – is piling up pay that the typical worker will never get.

Of course, really “successful,” i. e., very high paid CEOs can do even better. Take, for example, Brian Cornell, the former Pepsi executive CEO hired by Target to get the company out of its downward spiral. Cornell was paid about $10,832/hour (assuming a 50-hour week). Median salary for retail sales clerks such as those at Target? Just under $21,400 – annually. So, by the time Mr. Cornell told his executive assistant to get him that mid-morning cup of coffee, he had already been paid as much as many of his employees will make for the entire year. Or consider Steve Ells, founder and CEO of a company that’s been in the news recently, Chipotle. Ells pulled in about $11,125/hour so, in the first 100 minutes of the first work day, he had already been paid what a typical food preparation worker, such as many who labor for Chipotle, would make for the entire year.

Now, you might say, well that’s just the way it is with CEOs around the world. But that’s not true. While U.S. CEOs average 350 times the pay of a typical U.S. worker, in Norway the ratio is only 58:1 and in Japan 67:1. Those CEOs have to put in more time to get compensated to the level of their typical employees. OK, not a lot more time but at least close to a week!  And the typical large-firm U.S. CEO has to work about a month to be paid what his Norwegian counterpart makes in a year.

There is an important but often overlooked point when we talk about the obscene levels of CEO pay in the U.S.: the CEO:worker pay ratio has long term consequences for creating a hereditary plutocracy. When Theodore Roosevelt urged an estate tax in the early 20th century, he argued that transmission of enormous wealth to young men [sic] “does not do them any real service and is of great and genuine detriment to the community at large.”

But the huge payouts to our CEO elite are setting up a system that does exactly that, privileging generations of people to come who did nothing to gain that wealth. A prime mechanism is the special retirement accounts that are available to our corporate elite. Vehicles such as “supplementary executive retirement plans” (SERPs) and “executive tax-deferred compensation plans” allow high-paid CEOs to put aside millions of dollars into tax-deferred plans. Typical employees are limited to $24,000/year in 401(k) accounts. The result is a CEO/worker retirement asset ratio considerably greater than the annual income ratio. For example, YUM Brands CEO David Novak can expect monthly payments in retirement of $1.3 million. The average Social Security payment is only $1223.

With the connivance of Congress, our corporate overlords are creating systemic inequality that will follow all of us into our graves and beyond.

What to do about all this? 

The inequality across generations problem is probably the easiest to solve – cap tax-deferred compensation for everyone, including CEOs. The insane yearly pay inequalities also has, at least in part, a policy solution: eliminate the provision in the tax code that allows companies to reduce their reported income subject to taxation, dollar for dollar, by any amount of executive compensation that is labeled “performance compensation.”

But doing either of these requires political power. Bernie Sanders, anyone?

Bill Barclay is on the Steering Committee of Chicago DSA, is a founding member of the Chicago Political Economy Group and serves as DSA National Member Organizer.

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