POLITICS

Fast Food CEOs Make 1,000 Times More Than Their Typical Workers: Report

04/22/2014 12:55 pm ET | Updated Apr 23, 2014
ASSOCIATED PRESS

David Novak, the CEO of YUM! Brands, which owns Taco Bell and KFC, took home more than $22 million last year after exercising stock options, according to proxy statements. The average full-time fast-food worker, by comparison, would have made about $19,000 on the year.

Novak, in other words, raked in more than 1,000 times what a typical lower-rung worker would have over the same period.

The CEO-to-worker pay ratio at YUM! is just one example of the yawning income inequality found throughout the fast food industry, according to a new report from Demos, the progressive think tank, entitled "Fast Food Failure: How the CEO-to Worker Pay Disparity Undermines the Industry and the Overall Economy."

"It's true in many industries but fast food is the primary example: The gains from economic growth are being entirely awarded to people at the top of the income scale," Catherine Ruetschlin, author of the report, told HuffPost. "It's not a surprising finding that it's the worst industry within the worst sector, because that's where we're seeing the cracks forming."

According to the report, fast food appears to be the most unequal U.S. industry in terms of executive pay versus worker pay. The widening gap at restaurants like McDonald's and Domino's is due to two trends: The pay of fast-food CEO's has soared right along with executive compensation in the wider economy, while worker pay has pretty much stagnated in the industry and hovered not far above minimum wage.

In 2013, the average fast-food CEO earned four times the compensation of his or her counterpart in 2000, the report states. Meanwhile, the earnings for fast-food workers rose just 0.3 percent over the same period, when adjusted for inflation.

Although such disparity is widespread in the service sector, it's particularly acute in the world of fast food, Ruetschlin wrote. Analyzing data from the Bureau of Labor Statistics, she found that the CEO-to-worker pay ratio averaged 512-to-1 in the industry over the past 13 years. That's 54 percent higher than the pay ratio in the overall accommodation and food services sector, which includes hotels and full-service restaurants.

In the analysis, executive pay includes the value of exercised stock options, which can dwarf a CEO's base pay and swing significantly from year to year. Worker pay in the fast food industry was based on BLS's data for front-line workers in "limited-service eating places," a service industry category that generally encompasses fast food. As the report notes, most workers in the industry don't carry full-time hours, even though the ratios are based on full-time workers; the report may therefore overestimate the pay of a typical worker.

The year of greatest disparity in the industry was 2012, when the ratio stood at more than 1,200-to-1, according to the report. Analyzing recent proxy disclosures, Demos found that the ratio remained about 1,000-to-1 in 2013.

Topping Demos' list for CEO compensation is Starbucks, which, according to the analysis, averaged annual payouts of more than $36 million, including stock, since 2000. Chipotle, McDonald's and Domino's each averaged about $18 million, $11 million and $9 million respectively over the same period.

At companies like McDonald's, most of the restaurants are actually run by franchisees rather than the corporation. Since BLS data doesn't discriminate between franchise- or corporate-run locations, the report doesn't either, Ruetschlin said; it covers "all the workers who wear the uniform."

The fast food industry has featured prominently in the national debate surrounding the minimum wage. President Obama and congressional Democrats want to raise the minimum wage from $7.25 to $10.10 per hour and tie it to an inflation index so that it rises with the cost of living. They also want to raise the tipped minimum wage for restaurant workers so that it's 70 percent of the standard minimum wage.

Republicans and various business groups, including the restaurant lobby, have opposed the increase, arguing that it would force employers to cut back on hours.

The Democratic proposal has gotten a major boost from fast food workers who've taken part in one-day strikes and protests calling for a minimum wage of $15. Thousands of workers in dozens of U.S. cities have joined the walkouts, which were backed by labor unions and community groups. The high pay of industry CEO's has been central to the progressive case for a living wage in fast food.

Ruetschlin said the eye-popping CEO-to-worker pay ratios undermine the argument from the industry that restaurateurs are already paying workers what they can afford. She also said the ratios should be a serious concern for shareholders, arguing that gaping pay disparities could lead to low morale and poor customer service, ultimately hurting the company's stability.

McDonald's recently acknowledged in public filings that the ongoing discussion on income inequality could pressure the company to change its business practices.

"This is really to alert investors … that they're missing a vital piece of information that has a significant impact on the risks they face," Ruetschlin said.

New York City Comptroller Scott M. Stringer said on a call with reporters Tuesday that the report's findings concerned him as a trustee and advisor to the city's pension fund.

"For many of us who've met with workers at McDonald's and other fast-food restaurants, I think the discussion is appropriate to move into the boardroom, not just on the streets, so we can resolve some of these issues," Stringer said.

The left-leaning Institute for Policy Studies also released a report on Tuesday, analyzing the tax subsidies that help underwrite executive pay in the restaurant industry. Companies can take tax writeoffs for executive compensation that comes in the form of stock options.

The report found that CEOs at the 20 largest members of the National Restaurant Association, an industry lobby that has opposed minimum wage hikes, took home $662 million in tax-deductible compensation. That would have reduced the companies' tax bills by about $232 million, according to the report, entitled "Restaurant Industry Pay: Taxpayers' Double Burden."

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