If CEOs Earn 1,000 Times More Than Us, They Don't Need Taxpayer Dollars

Companies practicing racial or gender inequality cannot receive government dollars. It's time to do the same for economic inequality.

Mongolians can now pig out American-style — thanks to a little help from US taxpayers.

For its customers in Ulaanbaatar, Mongolia's capital, Pizza Hut is currently offering a package deal with a meat combo "Xtreme pizza,” a dozen chicken nuggets, eight chocolate pastries, four cinnamon twists, fried potatoes, and a bottle of Coke — all for the low-low price of 40,000 tögrög.

In US dollars, that works out to about $16, nearly a quarter of the average Mongolian’s monthly income.

How did US taxpayers help introduce this fine cuisine to one of the world’s most isolated nations? The Overseas Private Investment Corporation, a US government agency, provided taxpayer-backed financing to open eight KFCs and five Pizza Huts in Mongolia. The agency classified the $7.25 million loan as “highly developmental.”

The economic benefits of plying Mongolians with junk food are highly dubious. But Uncle Sam’s support for the project ought to disturb us for still another reason. The corporate owner of the Pizza Hut and KFC chains, Yum! Brands, just happens to be one of our country’s most outrageously inequitable companies.

Starting this year, American publicly held corporations are required by law to reveal the ratio between their CEO’s pay package and the amount earned by their median employee. The ratio at Yum! Brands gives new meaning to the exclamation point in the company’s name.

Yum! CEO Greg Creed’s 2017 pay amounted to $12.4 million — 1,358 times more than the $9,111 paid to the firm’s typical employee.

The taxpayer subsidy for Yum’s Mongolia expansion is just one of the more absurd examples we detail in a new Institute for Policy Studies report on pay gaps at the federal government’s top 50 contractors and top 50 subsidy recipients. Overall, we found that 68% of the contractors and 66% of the subsidy recipients have pay ratios of more than 100 to 1.

Many of the top contractors are heavily dependent on taxpayer largesse. Lockheed Martin, in the number one slot, raked in nearly half a trillion dollars in government deals in 2017 — 97% of total revenue. Its CEO, Marillyn Hewson, pocketed $23 million in 2017, 186 times as much as the firm’s median employee.

General Dynamics CEO Phebe Novakovic, a former CIA and Defense Department official, made $21 million last year, 218 times as much as her median employee and 104 times as much as the US defense secretary. In 2017, the company ranked third among federal contractors, with $15.6 billion in deals that made up more than half of total revenue.

That sort of CEO pay excess has outraged Americans across the political spectrum. A Stanford Business School survey two years ago found that 66% of Democrats and 52% of Republicans have become so outraged that they’d like to see a cap on CEO pay relative to worker pay.

The ideal CEO-to-worker pay ratio? Just six to one, Stanford's respondents said.

Policymakers at the federal, state, and local levels ought to be playing a responsible role in moving corporate America closer to this ideal. Our elected leaders, at every level, should be helping our society become more equal — not less.

It would hardly be unprecedented. Back in the 1960s, Presidents Kennedy and Johnson issued a series of executive orders that moved us in a more equal direction. Under their orders, companies that discriminated in their employment practices could no longer receive government contracts.

These orders reflected a new social consensus: We agreed as a nation that we didn't want our tax dollars to subsidize racial and gender inequality.

Now it’s time to take the next step and crack down on companies that contribute to extreme economic inequality.

With the new pay ratio data that corporations must now disclose, it'll be much easier to leverage the power of the public purse. We can limit or deny government contracts, subsidies, and tax breaks to companies that pay their top earners more than, say, 25, 50, or 100 times what they pay their workers.

We’re already seeing momentum in this direction. In Oregon this past January, the city of Portland began collecting revenue from the world’s first tax penalty on corporations that pay their CEO more than 100 times their median worker.

Legislators in five other states — Minnesota, Rhode Island, Connecticut, Illinois, and Massachusetts — have introduced similar tax legislation. In the US Congress, the pending CEO Accountability and Responsibility Act proposes to increase the corporate tax rate on firms that pay their CEO more than 100 times the pay of their median employee.

There are also signs of potential for bipartisan action. In November 2015, then Republican lawmaker (and now Trump budget chief) Mick Mulvaney from South Carolina authored an amendment designed to prevent the US Export-Import Bank from subsidizing any US company with annual CEO pay over 100 times median worker pay.

Some corporations, facing these new policies, might still refuse to share the wealth. But these companies would find themselves having to pay higher taxes and do without public contracts and subsidies. They would likely find little public sympathy for their plight.

Companies that pay their CEO more in a year than their workers could earn in a lifetime, after all, need our tax dollars about as much as Mongolians need a Pizza Hut.

Sarah Anderson is a co-editor of Inequality.org and the lead author of the new Institute for Policy Studies report, “How Taxpayers Subsidize Giant Corporate Pay Gaps.”

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