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The Threat of CEO-to-Worker Pay Disparity and How to Change It

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While many workers at some of our nation's largest companies earn less than eight dollars an hour, it's a safe bet that their CEOs are earning eight-figure salaries. That's not hyperbole; just last week we learned that a typical CEO now earns $10.5 million per year, a new high in executive compensation.

The new record of already stratospheric executive pay is another sign that the staggering growth in the CEO-to-worker pay gap we've seen over the last half-century isn't changing anytime soon -- unless we step up and take action.

The numbers are too outrageous to ignore. In 1965, CEOs at large U.S. companies made 20 times as much as the average worker; last year, they made about 273 times as much. Meanwhile, compensation for the average worker has been flat for decades, rising only 5.7 percent from 1978 to 2011 -- even though productivity gains over the same period have made workers significantly more valuable for their companies.

In the world of French fries, a 273-1 disparity looks like small potatoes: A new study released last month found that the CEOs of fast food companies make an astonishing 1,200 times as much as the typical fast food worker. The same is true for other areas of the growing service sector.

It's time for companies to understand that their hard-working employees deserve a raise. We need to do more to make sure companies ensure that work is valued and employees benefit from the success they help generate.

Why? Because the CEO-to-worker pay disparity isn't just a problem for companies that bestow lavish windfalls on their executives; it's also a problem for our economy as a whole. These gross inequalities mean that those at the bottom don't have enough money to spend -- and can't help stimulate our stagnating economy, which relies on consumers for growth. A report released this week found that increasing U.S. retail workers' pay to $25,000 per year would boost GDP by up to $15.7 billion.

Raising pay for workers would build stronger companies with lower worker turnover while also ensuring that consumers (who are of course also workers) have the income to spend on a given company's products and services. It would also help reduce inequality and grow the economy; putting more money in workers' pockets helps stimulate consumer spending and grows our economy.

Unfortunately, too few companies are stepping up to address low wages -- with some exceptions. It was refreshing, for example, to see that The Gap is raising its minimum pay to $10 per hour, but the majority of companies aren't following suit. McDonald's, for example, has so far refused pressure to raise wages even though it would take an employee earning overtime four months to earn what its CEO earns in an hour.

Some argue that big paychecks for executives are justified because much of their pay is tied to performance. But that argument is flawed on a number of levels. For one, the CEO "performance" metric companies often measure is short-term profits -- which is no way to predict a company's sustainable long-term success.

In addition, corporate boards offer CEOs plenty of wiggle room when measuring performance. Take Walmart, for instance, where Bill Simon, the president and CEO of the company's U.S. division, received more in performance-based compensation than the company's lackluster earnings allowed for. How did he manage that? In part because the company removed from bonus calculations what it estimated was the effect of last year's cut in federal food stamps on the company's bottom line.

Rather than further boost Simon's pay in this way, Walmart as a company would be much better off if it boosted the pay of its 1.3 million associates -- many of whom have to rely on food stamps themselves. Walmart, the largest private-sector employer in the U.S., could have a great impact not only on its own workforce and company but on the entire economy if it paid its associates better.

How do we -- as consumers and investors -- start to change this destructive imbalance and push companies to pay their employees a living wage? You may have heard about a few approaches:

• In the boardroom. Investors such as Amalgamated Bank's LongView Funds can make their voices heard about pay issues and work to reform corporate policies as shareholders. We recently saw this in action when investors overwhelmingly voted against the compensation packages for Chipotle's CEOs this year, which were worth about $50 million combined. We're still waiting to hear what the company will do as a result, but it's clear the vote got the company's attention: "We take this very seriously," a Chipotle spokesperson said after the vote.

• In the statehouse. Activists around the country are pushing for state and local changes that address pay disparity, like a bill in California that would give a tax cut to companies with a CEO-to-average worker pay disparity below 100-to-1, and a proposal to raise the minimum wage in Seattle to $15 per hour, which was approved this week.

• And in the streets. You've probably heard about the growing strikes by fast food workers, who are joining together and engaging the public in a push for fair wages.

You can be sure that companies that pay low wages have heard about these efforts as well, and they're starting to have an impact. Let's keep the pressure on so we can build a more prosperous future for all Americans, not just a select few.