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Last week, when Amazon shared the news that its blockbuster subscription service, Amazon Prime, hit a milestone of more than 100 million members, the e-commerce giant also revealed another astounding number: The average annual salary of an Amazon employee is $28,446.
This income, critics were quick to note, is in stark contrast to that of Amazon CEO Jeff Bezos. According to its annual proxy filing, Bezos’s compensation last year was $1.68 billion— way more than his average employee. Per Bloomberg’s Billionaires Index List, his net worth grew by $35 billion in 2017 alone, and the tech executive now has a net worth of $127 billion.
So how can Bezos, the world’s richest person, amass such wealth while plenty of his employees are reportedly living on food stamps? The same way Walmart CEO Doug McMillon earns an annual $22.8 million while the average Walmart worker makes $19,177, as the company’s security filing revealed on Friday.
Amazon and Walmart join a long list of American companies with huge pay gaps. And we’re finally getting the full picture, thanks to a new rule the US Securities and Exchange Commission is enforcing, in which publicly traded companies now have to reveal the pay of their CEOs as well as the median income of employees in their regulatory filings. The mandate is part of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, a reaction to the 2008 recession, in which investment banks, insurance companies, and mortgage companies either collapsed entirely or relied on federal support to keep running.
Dubbed “salary shaming” by the Washington Post, the ratios coming out of this new legislation illustrate just how dramatically CEOs have been able to prosper as their employees continue to earn low wages.
How we got here
Even before the SEC passed this new law, the fact of CEOs’ staggering paychecks (and payouts) has been well known (and much maligned) for quite some time. Last year, an Economic Policy Institute study found that the pay gap between CEOs and their employees has grown six times as large as it was three decades ago and that today CEOs make about 271 times more than their employees.
While the EPI noted that the CEO-worker pay gap peaked in 2000, when CEOs made 376 times more than the average employee, the ratio wasn’t always this alarming. In 1964, for example, CEOs made 20 times more than an average employee, and in 1989, they made 59 times as much.
Why have CEOs been enjoying such steep paychecks? One reason: the salary pivot from cash to stock options. Since the ’80s, more companies have changed the way they pay their CEOs, from cash salaries and bonuses to more substantial stock benefits, and, as Bloomberg reported, “rising equity prices made such awards balloon in value.”
“Amid a healthy recovery on Wall Street following the Great Recession, CEOs enjoyed outsized income gains even relative to other very-high-wage earners,” the EPI authors wrote. “Profits have reached record highs along with stock market highs.”
Some have argued that CEOs deserve these outsize paychecks. CEOs — traditionally white, male, and privileged — have become public faces of companies, at times bordering on celebrity figures. Amazon’s Bezos, Tesla’s Elon Musk, and the late Steve Jobs of Apple all have cult followings, and this public persona has the ability to boost — or burden — a company’s reputation, Tomas Chamorro-Premuzic argues in the Harvard Business Review. This has to translate to attractive compensation.
“Leaders always matter, but the more senior they are, the more people they impact,” Chamorro-Premuzic writes. “C-suite leaders can be expected to influence the majority of the organization. Open-minded and curious CEOs create an entrepreneurial culture, driven and intense CEOs create a culture of results and achievement, and altruistic CEOs create a culture of empathy and cooperation.”
Edwin Locke, a professor emeritus at the Robert H. Smith School of Business at the University of Maryland, told Canada’s CBC that a CEO is “worth his weight in gold” and “if you really have a good person, there’s no amount that you can say is too much.”
Steven Kaplan, a finance professor at the University of Chicago’s Booth School of Business, also argued that companies must incentivize CEO candidates who are already earning big salaries at law or consulting firms.
“Why should [they] go to a job where there’s huge risk and lots of scrutiny, and get paid less?” he said.
Why people are more upset about this now
While few would argue that Bezos isn’t the mastermind behind Amazon, or that McMillon isn’t helping Walmart continue to expand into the retail behemoth that it is, the disparities in salary are particularly enraging now, when stories continue to surface about poor treatment of employees.
As Bezos’s wealth grows alongside Amazon’s ambitions to be the world’s most powerful retailer, there have been ongoing reports about worker abuse at its warehouses, including limited bathroom breaks. As for Walmart, the retailer has had years of ugly PR regarding issues with salary and benefits. This year, the company stepped up its efforts by raising the employee minimum wage to $11 and expanding parental leave benefits, but its workers still “struggle with poverty wages, erratic schedules, understaffed and under-stocked stores, and mistreatment from management,” according to the activist group Change Walmart.
The advancement of these companies — and their CEOs’ huge payouts — is in stark contrast to a factory worker’s ability to climb and prosper from their parent company’s gains. As the executive compensation advisory firm Pay Governance notes, technology has “resulted in wage growth that lags the growth in productivity for those workers not participating in high-skill, technology-oriented labor markets or global commerce.”
Amazon’s revenue might be growing because of its dominating advancement into e-commerce and gadgets, but the pay gap between those on top and those on bottom keeps growing. When companies gain traction on the stock market or in annual sales, the EPI adds that “the fruits of economic growth are not going to ordinary workers.”
At the root of the new Dodd–Frank law is a national discussion around income inequality. But while renewed attention to this issue will no doubt agitate shoppers, experts say they are skeptical that publishing these figures will ignite anything more than “oohs and aahs,” not telling us anything we don’t already know.