HOW EXECUTIVES USE CORPORATE PROFITS

Executives at large, low-wage corporations are using profits and cash for exorbitant CEO compensation and stock buybacks, rather than increasing workers’ pay, contributing to workers’ retirement accounts, or investing in their corporations’ futures.

(Note: If you find my posts too long to read on occasion, please just skim the bolded portions. Thanks for reading my blog!)

The 30th annual report on how executives at large, low-wage corporations use the company’s profits has just been issued. It examines the 100 big U.S. corporations with the lowest median worker pay out of the 500 largest corporations in the U.S. (aka, the S&P 500). (Median pay is the middle of the distribution of the pay of all the workers at the corporation.) The corporations are referred to in the report as the “Low-Wage 100.” Note that women and people of color make up a disproportionately large share of the workers at these low-wage corporations. [1]

The report documents how profits were used among the following categories of spending:

·         Chief Executive Officer (CEO) pay ($14.7 million on average or 538 times the average of median worker’s pay),

·         Workers’ median pay ($34,522 or $17 per hour on average for a full-time worker),

·         Buying back the corporation’s own stock (over $1 billion per year per company on average for a total of $522 billion from 2019 – 2023),

·         Contributing to workers’ retirement savings, and

·         Investing in the future of the corporation.

For example, Ross Stores had the lowest median worker wage at $8,618 and a CEO making 2,100 times worker pay ($18.1 million in 2023), the highest ratio of CEO pay to worker pay among the Low-Wage 100. Nike’s CEO had the highest compensation among the Low-Wage 100 in 2023 at $32.8 million. This was 975 times the median worker’s pay at Nike.

From 2019 to 2023, 93 of the Low-Wage 100 corporations bought back their own stock. These buybacks artificially inflate the corporation’s stock price. This uses the corporation’s profits and cash to reward shareholders, including executives (who typically get a big chunk of their compensation in stock options), rather than compensating workers or investing in the business. For example, from 2019 to 2023, Lowe’s spent the most among the Low-Wage 100 on stock buybacks at $42.6 billion. This money could instead have been used to give an annual bonus for each of these five years of almost $30,000 to each of Lowe’s 285,000 workers, whose median pay is $32,626. Home Depot was second in buyback spending at $37.2 billion, which could have given its 463,100 workers five bonuses of $16,071 each year to augment their median pay of $35,131. Walmart spent $30.8 billion on buybacks, which could have given its 2.1 million workers five annual bonuses of almost $3,000 each to augment their median pay of just $27,642.

Another perspective on the stock buyback versus worker tradeoff is to compare the amount these corporations spent on buybacks versus contributions to workers’ retirement plans. Autozone had the largest imbalance, spending 92 times as much on buybacks as it contributed to workers’ retirement savings. Chipotle was second, spending 48 times as much on buybacks as on workers’ retirement benefits.

Another alternative to using profits and cash for stock buybacks would be to use them for internal capital investments that could, for example, improve efficiency, expand capacity, or upgrade equipment and technology. One might think that executives would prioritize such investments in the longer-term success of their corporations. However, from 2019 to 2023, 47 of the Low-Wage 100 spent more on buybacks than capital investments. Lowe’s led the way spending $33.6 billion more on buybacks than capital investments. Surprisingly, even hi-tech corporations like semiconductor maker Analog Devices spent $6.2 billion more on buybacks than capital investments and Johnson Controls, a maker of smart building technologies, spent $8.8 billion more on buybacks than investments.

Here are some highlights from the report (see the report for a list of all 100 corporations and related statistics):

Corporation         CEO pay            Median            CEO pay          Stock                 Investments

                                                       worker             as multiple       buybacks           in business

                                                       pay                   of worker pay

Bath & Body       $11.7 million      $  9,834           1,189                $  3.4 billion      $  1.6 billion

Coca-Cola           $24.7 million      $13,752           1,799                $  5.0 billion      $  7.9 billion

Hilton                  $26.6 million      $48,435              549                $  5.8 billion      $  0.7 billion

Lululemon          $16.5 million      $19,518              845                $  2.1 billion      $  2.2 billion

McDonald’s        $19.2 million      $15,802           1,212                $13.7 billion      $10.3 billion

Nike                     $32.8 million      $33,646              975                $17.5 billion      $  4.6 billion

Starbucks            $14.6 million      $14,209           1,028                $16.9 billion      $  8.9 billion

Target                  $19.2 million      $26,696              719                $12.5 billion      $19.6 billion

TJX Cos.             $22.2 million      $14,857           1,496                $  8.7 billion      $  6.0 billion

Yum! Brands       $21.2 million      $17,628           1,205                $  3.9 billion      $  1.2 billion

There are policies that would incentivize corporations and their executives to cut exorbitant CEO pay, to reduce stock buybacks (which used to be illegal manipulation of stock prices [see this previous post for more detail]), and to invest in workers and the future of their businesses. For example:

·         Higher tax rates on corporations with large gaps between CEO and worker pay,

·         Limits on the inclusion of extremely high compensation as a business expense and cost that reduces profits and, therefore, taxes owed,

·         Allowing recoupment of executive compensation from previous years when a corporation files for bankruptcy or gets a bailout,

·         Increasing taxes and/or restrictions on stock buybacks,

·         Closing tax loopholes, such as for “carried interest” income of investment managers and unlimited tax-deferred retirement contributions, and

·         Putting restrictions on CEO-worker pay gaps and stock buybacks in federal government contracts.

I urge you to contact President Biden and your U.S. Representative and Senators to ask them to reduce exorbitant CEO pay and stock buybacks, while encouraging investments in workers and a business’s future. You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414. You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Anderson, S., 8/29/24, “Executive excess 2024: The ‘Low-Wage 100’ large corporations are enriching CEOs at the expense of workers and long-term investment,” Institute for Policy Studies (https://ips-dc.org/report-executive-excess-2024/) This post is a summary of this report.