The pay gap between corporate chief executives and rank-and-file employee continued to widen during 2019.
The Winston-Salem Journal conducts an annual review of CEO compensation for corporations based in the Triad or with significant operations and workforce here.
The chief executives of five corporations — Hanesbrands Inc., Wells Fargo & Co., Caterpillar Inc., Lowe’s Cos. Inc. and Tanger Factory Outlet Centers Inc. — received at least $500 in compensation for every $1 paid to their median employee.
Median is defined as the middle value in a list of numbers.
Meanwhile, the smallest difference was a $12-to-$1 ratio for Robert Spilman Jr., chief executive of Bassett Furniture Industries Inc.
Since 1994, the annual salary, bonus and incentives, stock awards and other compensation of top-five executives from publicly traded companies have been disclosed by requirement of federal regulators.
An element of the Dodd-Frank federal regulatory act that went into effect in 2017 requires corporations to put a number and a ratio to the compensation gap between chief executives and their median employee salary.
For the second consecutive year, Hanesbrands chief executive Gerald Evans Jr. tops the CEO pay ratio gap.
Total 2019 compensation for Evans was $3.96 million in 2018. Although Evans was paid $1.1 million in salary, the bulk of his compensation was $2.31 million in incentive pay.
Evans’ total compensation for 2019 was down 55.2% from 2018 because Hanesbrands did not provide stock awards.
By comparison, Hanesbrands reported the median annual employee compensation was $5,784 for its nearly 63,000 employees, of which about 87% work in Central America, the Caribbean Basin and Asia. The median employee was determined to be a production operator in Honduras.
It was by far the lowest annual salary for a median employee for the 29 listed corporations.
That means Evans’ pay ratio is $591 in total compensation for every $1 paid to a median employee, as well as a $190.20-to $1 salary ratio.
Retail widens ratio gap
Of the other top-five CEOs in terms of pay gap, three have a retail presence in Wells Fargo, Lowe’s and Tanger, while Caterpillar has a major global workforce that works to pull down the salary of its median employee.
For example, Wells Fargo chief executive Charlie Scharf began his new job Oct. 1, so the $498,084 he earned in salary over 10 weeks equates to a $7.55 to $1 ratio with the bank’s median employee salary of $65.931.
However, Scharf is scheduled to make $2.5 million in salary for 2020, which would increase the gap to $37.91 to $1.
What boosted Scharf to a $550 to $1 ratio in total compensation was Wells Fargo providing him with stock awards valued at $28.79 million.
The awards were meant to make him whole from the value of restricted share rights that he forfeited when leaving his chief executive job at Bank of New York Mellon.
Meanwhile, Tanger chief executive Steven Tanger had a $511 to $1 ratio based on $6.57 million in total compensation and a median employee compensation of $12,954.
The CEO pay ratio chart continues to reflect decisions by corporate boards of directors to reward based on stock performance, rather than profits and revenue.
Corporate America made that shift during the depths of the 2008-11 economic downturn and the height of backlash against executive compensation.
Although federal regulators require corporations to declare the value annually, executives typically are required to wait a specified amount of time — often one to three years — to receive those shares or exercise the options.
The prevailing theory is that executives will be more inclined to be prudent with shareholder value, potentially taking less risk, if their own compensation is weighted primarily toward share-price performance.
Some pro-business groups, such as the U.S. Chamber of Commerce and National Retail Federation, fought efforts to disclose the CEO pay ratio.
The retail trade group calls the ratio “a flawed measure that unfairly singles out industries, like retail, that have high percentages of part-time, seasonal and entry-level employees.”
“Failing to adjust for the large number of part-time and seasonal workers inflates retail’s ratios by an estimated 31% over typical employers.”
The federation recommends comparing median earnings that factor out part-time workers.
The chamber has referred to the reporting requirement of the CEO pay ratio as an example of an unnecessary financial burden for corporations.
The chamber said global companies shouldn’t be overly criticized because they source lower-cost production offshore; the strategy has led to lower prices for U.S consumers on many imported products.
Allan Freyer, director of workers’ rights for the left-leaning N.C. Justice Center, said working people “have long wondered why their wages have remained stagnant over the past 30 years.”
“Now, we know.”
The left-leaning Institute for Policy Studies determined that of the 50 publicly traded U.S. corporations with the widest pay ratio gaps in 2018, “the typical employee would have to work at least 1,000 years to earn what their CEO made in just one.”
Among S&P 500 firms, nearly 80% paid their CEO more than 100 times their median worker pay in 2018, and nearly 10% had median pay below the poverty line for a family of four.
The institute said it supports a CEO pay strategy of Democratic presidential candidate Bernie Sanders.
Sanders favored tax penalties ranging from 0.5 percentage points on pay ratios over $100 to $1, to 5 percentage points on ratios above $500 to $1.
“S&P 500 corporations as a whole would have owed as much as $17.2 billion more in 2018 federal taxes if they were subject to (those) tax penalties,” the institute said in a September 2019 report.
“Tax penalties on extreme CEO-worker pay gaps would encourage large corporations to narrow their divides — by lifting up the bottom and/or bringing down the top of their wage scales.
“Such reforms would also give a boost to small businesses and employee-owned firms and cooperatives that spread their resources more equitably than most large corporate enterprises.”
The institute said the tax penalties have become more relevant “in light of the Republican-sponsored congressional legislation that slashed the corporate tax rate from 35% to 21% in late 2017.
“Republican leaders promised that corporations would invest their windfalls to boost working families,” the institute said.
“Instead, U.S. companies announced a record-setting $1 trillion in stock buybacks in 2018, a maneuver that serves only to enrich wealthy shareholders and top corporate executives.”
Throw up your hands
Analysts and economists say the new CEO pay ratio has the potential to make the issue more of a paycheck and dinner table conversation.
Or, it could just provide another throw-up-your-hands, what-can-you-do round of frustration.
“The whole purpose of compensation disclosures is to allow shareholders to make an informed judgment regarding the say-for-pay decisions that are also enabled by Dodd-Frank,” said Tony Plath, a retired finance professor at UNC Charlotte.
“So far, anyway, it looks to me like most shareholders (except large institutional shareholders and the shareholder advisory services) are basically ignoring this information, or at least they’re not expressing much criticism of CEO compensation rates these days,” Plath said.
Plath said CEOs are likely to catch less flack this time around, in part because “everyone’s too concerned with the COVID crisis, and Warren Buffett’s sale of all his airline stocks.”
Another factor is that many corporations have reduced temporarily executive management compensation by between 10% and 50% in response to the pandemic, along with requiring rank-and-file employees to be furloughed for several weeks or receive lower pay for reduced hours.
“Once the pandemic crisis passes later this year, and things get back to normal or the new-normal, whatever that is, CEO pay may again surface as a concern issue,” Plath said.
Less important, but more important
Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University, said CEO pay ratio disclosures “are simultaneously less important and more important in the era of COVID-19.”
“They are less important since CEOs have often cut their pay by a greater percentage than their workers have received and thus the pay ratios have decreased in size.”
“However, they are more important because they highlight what many workers see as a fundamental inequality between management and staff in terms, not only of pay, but also of importance to the company itself.”
He cited as an example that the Walt Disney Co. laid off 100,000 employees at its theme park.
“Their top managerial staff has taken pay cuts that, while larger in terms of percentages and amounts, still leave them in most cases with pay that is significantly in excess of what even those front-line workers and lower management who are still employed make even with those cuts,” Madjd-Sadjadi said.
“Cutting compensation tends to drive people to start looking elsewhere, as well as within their own companies, and encourages people to question the differences in pay.
“This will likely lead to a lot less corporate loyalty and much more job-hopping once the economy fully recovers and this will cause a dramatic reduction in institutional memory from these companies that may never fully be recovered.”