Effect of Slashing CEO Salaries on Employee Wages: Zilch

Recently, the SEIU orchestrated walk-outs at fast food restaurants across the country. Among the protestors’ demands was that they start making $15 per hour – more than double the federal minimum wage of $7.25 per hour. In support of this demand, labor-backed policy groups rehashed a frequent complaint about the gap between CEO pay and the minimum wage—the suggestion being, if CEOs were paid less, employees could be paid more.

While that argument may have rhetorical appeal, a factual analysis illustrates that it’s plain wrong. Even if CEOs of major retail and restaurant companies took a 100 percent pay cut, distributing the money evenly among their employees, it would have almost zero impact on take home pay.

We reviewed publicly available data on CEO pay for three oft-reviled but representative  service sector companies: McDonald’s, Walmart, and Starbucks. For each CEO, we divided total cash compensation (i.e. salary, non-equity incentive pay, and other cash compensation) by the total number of employees.

The results were striking: Distributing CEO pay equally to each of the remaining staff typically  provides less than a penny increase in per-hour pay. At McDonald’s—which has been the focus of many recent protests–employees would receive roughly half of one cent more per hour if the company’s CEO forfeited his pay. (The impact would be even smaller if CEO pay was also distributed to franchisee employees.)

CEO pay_final

We have written before about intellectually bankrupt arguments for raising the minimum wage, and we can add this one to the list. A more productive conversation – and one that would not harm young and less-experienced employees – would involve policies such as expanding the Earned Income Tax Credit (EITC). But such a discussion would require a policy debate, instead of ideological attacks, which is probably too much to ask of this crowd.