Rarely does one think of the word “heartwarming” to describe executive compensation news, but a Kentucky university president made it happen this week when he decided to take a pay cut to boost 24 of his lowest-wage employees’ paychecks.
What if Walmart’s CEO took a pay cut for his workers?
Hearing that story, it’s hard not to think about America’s CEOs. What would that look like if a CEO of a major US corporation took that big of a pay cut?
Walmart seems like an appropriate place to look, as it's a massive corporation that is also at the center of the minimum wage debate. The massive retailer has 1.4 million US employees, and its top employee, CEO C. Douglas McMillon, receives $25.6 million in annual compensation, according to Bloomberg Businessweek.
There’s no way to know exactly which Walmart employees earn which wages. However, last year Walmart US president and CEO Bill Simon announced that 475,000 of its 1 million hourly employees work full-time and earn more than $25,000 per year. So 525,000 hourly employees earn less than $25,000 a year, and for those who are full-time, that’s around $12 an hour.
If McMillon were feeling generous and gave away $20 million of his 2014 compensation (which, OK, he won’t), it would only mean an additional $38 to each of those lower-wage workers.
It’s still true that all that executive compensation goes a long way. If McMillon cut his compensation by $20 million, that money could boost nearly 3,400 full-time, minimum wage workers from $7.25 per hour to $10.10 per hour. That’s big, but as far as Walmart goes, that’s a tiny sliver of workers.
Hm. Ok, what if you look at TOTAL executive compensation at Walmart? According to Morningstar, that was at $77.33 million in 2014. What if all of those executives gave all of that away?
Even then, though, you can tell at a glance that that only helps those 1.4 million US workers to the tune of way less than $70 per person. Limit it to the 525,000 people who earn $25,000 or less per year, and you get around $147 per person — helpful to someone with a small paycheck and a stack of bills, but still not that big.
So in part this is a question of scale. In the Kentucky case, the president gave money to only 24 workers. But try this with any other large company that employs a lot of low-wage workers (like big retail or restaurant chains — I did a few quick calculations on Starbucks and the results were similarly underwhelming), and this idea doesn’t exactly work. (And if a business is franchised, like McDonald’s, finding the right statistics gets way tougher anyway.)
Not only that, but a lot of this compensation is in the form of stock options, so it’s not exactly readily available to hand out to cashiers and baristas.
While this idea doesn’t work on a single-CEO level, the highest-paid US CEOs as a group pull down a fantastic amount of money. For an idea of how big that is, consider another hypothetical. The average compensation for the head of an S&P 500 company was $11.7 million in 2013. Let’s say all of the highest-paid CEOs decided to hand out all of their compensation in the form of cash.
Together, they all earned roughly $5.9 billion in compensation last year. That’s enough money to give all 3.3 million American workers who earn at or below the minimum wage a nearly $1,800 annual bump. Or nearly $5,000 for the nearly 1.2 million full-timers, which totals out to an hourly bump of around $2.40.
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