Corporate profits skyrocket while worker pay remains flat

Submitted by Dale Moerke, Luverne, field staff
West Area Labor Council-
Red River Valley/AFL-CIO
In 2018 CEOs of Standard and Poor’s 500 companies made on average $14.5 million, up from the $500,000 dollar raise from 2017.
Compare that to the average rank-and-file worker who received barely more than a $1,000 raise, bringing total take-home pay in 2018 to $39,888.
Even with the extra cash, wages are not keeping up with inflation. The average worker isn’t making enough to cover rent for a two-bedroom apartment in 15 of the largest cities across the country.
Meanwhile, 40 percent of hourly workers have nothing saved for an emergency, while 75 percent have less than $500.
We know this equality gap isn’t new. Over the past decade, the average S&P 500 CEO’s pay increased by more than $5 million, while the average worker only saw an increase of less than $800 a year.
Not surprisingly, the CEO-to-worker pay ratio remains high: 287 to 1 — meaning the average CEO earns 287 times what an average employee earns. 
This disparity represents a fundamental problem with our economy: Productivity and corporate profits are through the roof, but wages for working people are flat and staying flat.
 
What’s causing this and how can we fix it?
Well, the recent tax cut only made things worse by widening the gap between the 1 percent and the rest of us.
The corporate income tax rate was reduced from 35 percent to 21 percent, and 60 of the largest U.S. companies paid nothing in federal income taxes last year — despite being profitable. As an example, Amazon users pay more for a Prime membership than Amazon paid in federal income taxes last year. 
Stock buybacks are another loophole CEOs are taking advantage of to line their own pockets. Instead of investing in their greatest asset — workers — companies can now purchase their own stock to boost short-term stock prices and executive pay.
Here’s an example: In recent years, video game maker Activision Blizzard kept significant profits overseas to avoid paying federal taxes on those profits here in the U.S. 
In 2018 Activision recorded a $225 million federal tax benefit, despite $1.8 billion in earnings worldwide. It also reduced its offshore cash holdings from $3 billion to $1.4 billion. And in January 2019, it adopted a stock buyback program to repurchase up to $1.5 billion in shares.
This was just a month before the company laid off 800 employees — nearly 8 percent of its staff.
Here’s the kicker: Activision CEO Robert Kotick received $30.8 million in 2018 — 319 times the typical employee. This is like legal highway robbery.
 
Here’s how it works:
•First, buybacks help CEOs and executives artificially meet their incentive pay targets. For example, stock buybacks can boost earnings per share — even if earnings don’t grow.
•Second, the short-term boost in a stock’s price from a buyback is often used by executives to liquidate shares that they received as part of their compensation package. 
 
Here’s what we can do:
The AFL-CIO is calling on the Securities and Exchange Commission (SEC) to take action on corporate executives who abuse stock buybacks for their own personal gain.
And, we’re supporting federal legislation that would ban stock buybacks. 
 
Bottom line:
For too long, corporate greed and rigged economic rules have created a relentlessly growing pay gap between CEOs and the rest of us.
It’s why everything from a college education to retirement security to gas prices are getting harder and harder for people to afford. We see it every day in communities across the country. And that must change. 
Our economy works best when consumers have money to spend. That means raising wages for workers and reining in out of control executive pay.
This year’s report is a stark reminder that working people must use our collective voice to form bigger, stronger unions and rewrite economic rules once and for all.
 
Author: AFL-CIO Secretary and Treasurer Liz Shuler 
 
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