Companies with very low salaries spend billions on stock buybacks instead of promotions

While some Americans have been looking to tighten their belts recently, US companies have been on a spending spree—but that money hasn’t been going to workers or capital improvements. Instead, the spending boosted shareholder returns and helped send already high CEO pay skyrocketing.

Over the past five years, all but seven of the 100 largest low-wage employers spent a combined $522 billion on stock buybacks. This is when corporations buy back their stock, which increases the stock price, which in turn increases the stock-based earnings. During that same period, the 20 largest employers spent nine times as much on stock purchases as they did on employee retirement plan contributions.

That’s according to the progressive research organization, the Institute for Policy Studies, which recently released its annual Executive Excess report, which looks at high levels of pay and how that pay affects inequality. The report focuses on what the Center calls the “Low Pay 100,” which are the 100 companies from the S&P 500 with the lowest pay for the median employee.

CEO-to-worker salary ratio

Among these 100 companies, the median annual salary for employees ranges from $8,618 for a part-time employee at Ross stores to $51,084 for a regular employee at Kleenex maker Kimberly Clark. (The Securities and Exchange Commission, or SEC, does not allow companies to annualize their part-time pay when disclosing their median employee pay, noting that it says something about a company’s business model if it relies on part-time workers.)

Overall in 2023, the average pay across all 100 companies reached $34,522—up 9% from 2022. At the same time, average CEO pay fell slightly, from $15.3 million to $14.7 million. That puts the CEO-to-worker-pay ratio for these companies at 538-to-1, down from 603-to-1 last year.

That gap between what the average worker earns and what the CEO earns is much higher than it has been historically—and higher than other companies. For the S&P 500 as a whole, the ratio is 268-to-1. In 1965, the average CEO-to-typical-worker-pay ratio in large US companies was 25-to-1.

Rising inflation and stagnant wages mean millions of workers are struggling. That the CEO-to-worker-pay ratio has decreased at all, according to the report, is due to deliberate efforts, such as minimum wage increases at the city and state levels (though not at the state level) and labor actions after the pandemic, including strong union campaigns. “Low-wage workers have fought hard to get a fair share of the rewards of their work,” said Sarah Anderson, who wrote the report and directs the center’s Global Economic Project, “but the gaps still exist.” .”

Spending on stock purchases is more than other investments

Stock buybacks contribute to that gap—and show how companies invest in CEOs and shareholders over their employees or other aspects of their business, Anderson explained. From 2019 to 2023, 47 of the “Low-Wage 100” companies spent more money on stock purchases than on capital expenditures, meaning anything from technology investments (including cybersecurity) and new equipment development.

After years of writing this report, Anderson says he’s rarely shocked, but it made him sad. “It underscores that the leaders of these companies think too short-term and think more about their personal benefits than the long-term health of the company and its employees,” he said. When companies invest in their stock over their operations, that can come at the expense of safety improvements. Companies also bought back stock before disasters such as the infant formula crisis and the Norfolk Southern train crash.

Johnson Controls, which manufactures smart building technology, spent $8.8 billion on stock purchases rather than capital expenditures over the past five years. “However, they had this massive cyber attack,” Anderson noted. A September 2023 ransomware attack cost the company $27 million. “That is a clear example that maybe they should have invested more money in IT security instead of spending more money on buying stock,” he said.

Lowe’s spent $33.6 billion on stock buybacks instead of capital investments—the largest gap among the reporting companies. That is a big change from the way the company behaved before; in the middle of 2000 and in 2004, Lowe’s spent nothing on stock buybacks.

The difference in spending on stock purchases versus employee retirement contributions also reflects where the company’s priorities lie. Regarding retirement benefits, the report looked at only the 20 largest companies on the list, as it was difficult to collect the data. Those are 20 notable names: AutoZone spent 92 times more on stock buybacks than on employee retirements between 2019 and 2023; Chipotle spent 48 times more. Some of these companies boast retirement matching programs—but for many workers, their paychecks are too low to pay for anything in retirement, so they don’t benefit from matching programs.

Signs of change

Stock buybacks were illegal until Ronald Reagan legalized them in 1982. There are signs that there may be a desire to bring them back. At the Democratic National Convention, Democrats reiterated the proposal to quadruple the stock purchase tax from 1% to 4%, as a way to encourage companies to invest in their production. The CHIPS and Science Act of 2022, which invests in semiconductor production, includes a condition that companies receiving such funding must agree to forego all stock purchases for five years.

Recent union campaigns have also gone into stock buybacks. From railways to aviation to telecommunications, workers have urged companies to end procurement instead of investing in workers.

Anderson does not suggest that there is a direct trade-off, such that every dollar that goes into stock purchases could instead go toward employee wages or benefits. But it shows the company’s priorities. Anderson says: “Stock buybacks don’t do anything for the average employee at these companies. It also challenges companies’ arguments that they don’t have more money to pay for their workers’ compensation. “The reason for the buyback is that this is excess profit that they don’t know what else to do with.”