Demos.org Fast Food Failure How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy Catherine Ruetschlin.

Demos.org

Fast Food FailureHow CEO-to-Worker

Pay Disparity Undermines the Industryand the Overall Economy

Catherine Ruetschlin

There is a growing consensus about the negative consequences of inequality on

economic growth and stability. • IMF (2014): Inequality is harmful for the

level and duration of growth.

• WEF (2014): Severe income disparity is a primary risk in 2014, leading to economic and political instability.

• Piketty (2014): Inequality undermines productivity, growth, and success through merit. High executive incomes are unproductive rents.

There is a growing consensus about the negative consequences of inequality on

economic growth and stability. McDonald’s (2014): Shareholder risks from inequality include • Adverse perceptions of the company brand;• Boycotts, strikes, and supply chain

interruptions;• Increasing public focus on matters of

income inequality and the need for higher wages;

• Increasing public focus on workplace practices, conditions, and legal compliance.

The CEO-To-Worker Compensation Ratio In Accommodation And Food Services Is Much Higher

Than The Rest Of The Economy

Accommodation And Food Services Had the Highest Pay Disparity

During Seven Years from 2000-2012

The CEO-To-Worker Compensation Ratio Is Highest In Fast Food

CEO-to-Worker Compensation In Fast FoodCompared To Select Sectors

From 2000-2012 the Fast Food CEO-to-Worker Compensation Ratio Grew 470 Percent

Fast Food CEO Compensation From 2000-2013

CEO Compensation at YUM! Brands

• Earnings Per Share declined by 9 percent.

• A food safety scandal in the largest overseas market caused significant losses.

• The company’s chief executive in China received $17.2 million in pay in 2013. The company determined that the China division had reached 172% of its system customer satisfaction target.

• CEO compensation is set to “Motivate high performance and reward short-term Company, team and individual performance” and return shareholder value.

Excessive Executive Pay and Misplaced Incentives Lead to the Misallocation of Financial, Real, and Human Capital

(Mihir Desai, Harvard Business Review 2012)

Exposure to Operational, Legal, and Regulatory Risks

• Increasing customer wait times• Decreasing order accuracy• Poor customer services ratings

• Litigation and illegal pay practices• Worker Strikes

• Deteriorating brand perception

Broader Economic Effects of Pay Disparity

• The most disparate industries are adding the most jobs to the economy. • Retail and fast food are top 5

occupations for projected job growth through 2022.

• Increasing employment share leads to greater disparity economy-wide

• Reinforces volatility and slow growth

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