Fast Food Failure: How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy

Source: Catherine Ruetschlin, Dēmos, April 22, 2014

From the summary:
The link between income inequality and economic instability has drawn renewed attention from economists, policy makers, global financial institutions, media, and investors. From Davos to Wall Street to Main Street, there is a growing consensus that inequality slows economic recovery and dampens consumer demand.

Yet the gap between the highest and lowest earners in the US economy continues to grow, with consequences for the economy and firm performance. New analysis of the CEO-to-worker compensation ratio across industries shows that Accommodation and Food Services is the most unequal sector in the economy, and that this extreme pay disparity is primarily driven by one of the sector’s component industries: fast food. The fast food industry is also one of the highest growth employers in the nation.

Over the past year, frustrated front-line fast food workers, striking for higher pay and union representation, have increased public scrutiny of low wages and poor conditions. Workers’ nationwide protests, among other factors, spurred industry-leader McDonald’s to identify several consequences of inequality as a threat to its long-term performance.

Fast food income inequality has serious repercussions for the entire industry—not just McDonald’s—and across the economy as a whole. Fast food companies and other firms will need to address their imbalanced pay practices in order to mitigate the damaging effects of income inequality.

Key Findings:
– Analysis of US company-level pay disparity shows that Accommodation and Food Services is the most unequal sector in the American economy, driven by extreme inequality within the fast food industry….
– Pay disparity in the fast food industry is a result of two factors: escalating payments to corporate CEOs and stagnant poverty-level wages received by typical workers in the industry….
– Growing income inequality within fast food has troublesome implications for the economy and for companies in the industry….

Shareholders interested in the continued success of the fast food industry should be particularly attuned to these issues, since according to the industry leader inequality is already threatening the bottom line. Reducing the proportion of CEO-to-worker compensation by addressing bad practices on both halves of the ratio is one step toward realigning the interests of stakeholders in the firm, including shareholders, executives, and the workforce overall….