If you went to your child’s nursery school and saw one toddler with 300 toys while most—including your own—only had one or two to play with, what would you think?
This ugly picture is an apt metaphor for the pay practices at many of the largest U.S. companies today.
While low-wage earners suffer most, there’s growing evidence that low pay harms almost everyone, hurts corporate profits over the long term, and stifles economic growth. But could U.S. companies afford to pay more – could they invest dollars in workers today -- in order to reap longer term gains?
A look at Fortune 500 data suggests that the largest U.S. corporations could improve the economy, their bottom lines, and the lot of millions of workers by increasing the wages they pay their employees.
Fortune 500 companies employ nearly 27 million workers. And all but 37 of the Fortune 500 earned a profit last year. What would happen if those firms that ended up with extra change at the close of the year gave their lowest paid workers a healthy raise?
Of the Fortune 500 companies with positive net income last year, all but 14 could have paid one quarter of their workforce $10,400 more annually and still had millions to spare. (See the results for all Fortune 500 companies.)
This calculation assumes that the tax deductions for the raises would offset any incremental benefits costs and that no other revenue boosts or cost savings would accrue from happier, more stable employees. The $10,400 bump equates to a $5 per hour raise for a full-time worker.
Nearly 85% of Fortune 500 companies with positive income could have paid every single worker $10,400 more and still finished 2013 in the black.
Wal-Mart, No. 1 on the Fortune 500 and the nation’s largest private employer, could have given a $10,400 raise to its bottom quartile of wage earners and still have finished the year with net income of over $10 billion. In fact, it could have paid 70% of its 2.2 million workers $10,400 more annually and still had millions to spare. Wouldn’t that be more humane than hosting a Thanksgiving canned food drive for its Canton, Ohio employees?
In April, Time magazine reported that some Disney workers were homeless due to low pay. Yet according to the Fortune 500 data, Disney (No. 61 on the Fortune 500) could have paid half of its employees $20,800 more annually or all of its employees $10, 400 more and still booked profits of over $4 billion.
Family Dollar Stores, which made 24/7 Wall Street’s list as one of the worst companies to work for and is No. 271 on the Fortune 500, could have given 92% of its workers a $10,400 raise and still turned a profit last year.
Wal-Mart, Disney, and Family Dollar spokespersons did not respond to requests for comment on the calculations or their implications. But the results don’t surprise Dean Baker, co-director of the Center for Economic and Policy Research. Based on the level of historical earnings, “companies clearly could pay more,” he told me, and “it would make a huge difference” if they did.
Fifty-four percent of the 1,000 Americans polled by NBC News/Wall Street Journal in August said that they believe “The widening gap between the incomes of the wealthy and everyone else is undermining the idea that every American has the opportunity to move up to a better standard of living.”
On September 2, members of House the Homeless, founders of the Universal Living Wage Campaign, flew banners on the Barton Skyway bridge in Austin, Texas. “It was National Bridge the Economic Gap Day—our 13th”, Richard R. Troxell, author of Livable Incomes: Real Solutions that Stimulate the Economy, wrote me in an email. On that hot September day, instead of angry car horn honking and raised middle fingers, “the vast majority of horns were toots and there were many, many big rig blasts of encouragement and the fingers turned into thumbs that were all up.”
There’s a lot of talk about political gridlock in D.C. But one of the biggest challenges our economy faces is corporate gridlock. What will it take to create a corporate focus on economic growth and long-term profitability in a socially responsible way?
Just 500 chief executives could decide to help their companies, the economy, and many millions more. But will they?
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999.