By State Senator Catherine
Cool Rumsey
Recently, Walmart CEO
Doug McMillon told Business Insider that he’s an “associate,” just like the
retail workers in Walmart stores. Mr. McMillon, however, makes nearly $10
million a year, while 30,000 of his “associates” make the minimum wage.
Many people recognize
that the wide — and widening — wage gap in the United States is a detrimental
economic trend that harms the vast majority of Americans. But as a country that
has long revered the entrepreneurial spirit and the notion that those who build
a successful enterprise deserve to reap its rewards, perhaps some feel there is
little we can do to prevent wealth concentration among those at the top of
private industry.
One element that
contributes to the concentration of wealth in this country is the inordinately
high compensation packages that many companies pay their executives. While the
success of those firms often relies on paying disproportionately lower wages to
the masses who create, sell or otherwise promote the corporation’s products or
services, those at the top can pull down tens of millions in a single year,
hundreds of times the salary of the vast majority of their employees.
According to a 2013
Economic Policy Institute study of the top 350 U.S. firms, CEO pay grew more
than 876 percent between 1978 and 2011, more than twice the growth of the stock
market and significantly faster than the growth of typical private sector
workers. The ratio of CEO pay to average worker pay widened accordingly. In
1978 it was 29 to 1; by 1995, it had grown to 122 to 1, and it peaked at an
astonishing 383 to 1 in 2000.
Low wages are not just
a business matter. This extreme wage inequality often comes at a cost to the
taxpayer, too. Many workers at the bottom of the pay scale are forced to rely
on numerous social services — food assistance, subsidized child care, rent and
energy assistance, and health care — to make ends meet, despite being employed
full time.
To put the taxpayer
cost into perspective, a recent report estimates that low-wage earners at a
single Walmart Supercenter in Wisconsin cost taxpayers $900,000 to $1.75
million in public assistance provided to their employees annually. The question
we as taxpayers need to ask ourselves is, “Why should our tax dollars subsidize
economic inequality?”
I have proposed one
course of action in the form of legislation (2014-S 2796) that would give preference in
state contracts to companies whose executives are paid salaries that don’t
exceed 32 times the salary of their lowest-paid full-time employee. As an
example, for a company to have a preference in contracting with our state, if
the CEO made $1.6 million, its lowest earners would need to make at least
$50,000.
This legislation
doesn’t stop companies from paying their CEOs whatever salary they want, nor
does it even prevent those companies from bidding on and winning state
contracts. It simply gives a preference to companies that do their part in
reducing their employees’ need for taxpayer subsidies. I believe it would also
lead to more efficient and effective pricing and services from companies that
are truly interested in serving the public interest instead of soaking the
taxpayers.
Fairer wage ratios and
bringing up wages of those struggling will also return to the middle class some
of the buying power it had in the middle of the 20th century — a plus for those
very companies that have products to sell.
Our state speaks with
our money; saying we would prefer, when possible, to do business with companies
that aren’t contributing to the proliferation of economic inequality is the
right way to use taxpayer money.
The hidden cost to the
taxpayer as a result of wage inequality has been growing for decades; it will
take many actions to change course. Congress passed the Dodd-Frank Wall Street
Reform and Consumer Protection Act in 2010, which instituted a new level of
transparency on executive pay. The Senate bill implements a simple preference to
help promote income security and economic justice for all Rhode Islanders.
Sen. Catherine Cool Rumsey is a Democrat who
represents District 34 in Exeter, Charlestown, Richmond, Hopkinton and West
Greenwich. Her
bill passed the Senate on June 5 and will now go to the House of
Representatives.
This article originally ran in ecoRI.