Economy

Food Chain CEOs Want Subsidies for Their Salaries, But Are Against Raising Workers' Wages

There's injustice inside your Chipotle burrito bowl and your Starbucks latte.

Photo Credit: TACVBO/Flickr

You might say the chieftains of America’s largest restaurant corporations want it every which way and then some.

Having read the polls supporting a minimum wage hike, they’re skittish about trashing the idea personally. So they pay their DC lobby machine to do their dirty work. And it’s not enough for them to shove the costs of their low-wage model onto Joe Schmo taxpayer. These CEOs are also making the rest of us pay for their own fat paychecks.

How’s that again? Yes, ordinary taxpayers are not only covering the cost of billions of dollars in public assistance for restaurant workers who earn poverty wages. We’re also subsidizing the pay of our nation’s notoriously overpaid CEOs.

Here’s how it works: Under the current tax code, corporations can deduct no more than $1 million for executive pay from their federal income taxes. But there’s a giant loophole that allows unlimited deductions for “performance pay.” So, no surprise, what the big corporations tend to do is put about $1 million of their executive pay packages toward salary and call the rest “performance pay.” That way the more they shovel into their CEO’s pockets, the less they pay Uncle Sam. And the rest of us foot the bill.

A new report I co-authored at the Institute for Policy Studies explains how the 20 largest corporate members of the National Restaurant Association have benefited from this loophole. These corporations aren’t necessarily bigger exploiters than those in other sectors. But they deserve extra scrutiny because of the high social costs of their low-wage model—and because they’re fighting so hard to preserve it.

Nearly all of the big restaurant corporations are members of the National Restaurant Association, which is leading the charge against minimum wage increases.

1. Starbucks

In 2012 and 2013, Starbucks CEO Howard Schultz took in $1.5 million per year in salary, which is subject to the $1 million deductibility cap. But that was just the foam on top of a triple venti.

Now we get to the serious money. Schultz cashed in stock options worth $230 million over this two-year period. For good measure, the board tossed him $2 million-plus incentive bonuses each year. Both of these types of compensation fall into the “performance pay” loophole.

So how much does Starbucks get to subtract from its tax bill for the cost of this one guy’s “performance pay”? $82 million.

That’s a lotta lattes.

Like several other big restaurant CEOs, Schultz has taken a soft line on the minimum wage. That is, when asked about it personally. Meanwhile, Starbucks remains a member in good standing of the National Restaurant Association, which is deploying dozens of lobbyists to block a wage increase. 

2. Yum! Brands

Next time you’re shelling out for a Gordita Supreme at Taco Bell, keep in mind that you’re also contributing to a grande-sized paycheck for the CEO of the chain’s parent company, Yum! Brands. 

Yum! CEO David Novak took $67 million in “performance pay” over the years 2012 and 2013, which lowered the firm’s federal tax bill by about $23 million.

Low-level workers at Taco Bell and Yum!’s other chains (Pizza Hut and KFC) earn less than $8 per hour on average. Since that’s not a living wage anywhere in the United States, it’s no surprise that many Yum! workers must rely on Medicaid or other taxpayer-funded anti-poverty programs to make ends meet. The National Employment Law Project estimates that Yum! employees receive nearly $650 million in public assistance annually.

In addition to the firm’s membership in the NRA, Yum! has also been active with the American Legislative Exchange Council. In 2011, a Yum! official co-led an ALEC task force focused on blocking paid sick leave benefits. Rather than giving sick employees a break, it seems they’d rather have them sneezing on your Gordita.

3. Chipotle

Chipotle has invested heavily in developing a progressive customer base by projecting the image of a “sustainable” fast food alternative. So it’s not surprising that the firm’s top brass have shied away from speaking out personally against the popular push to raise the minimum wage.

Co-CEO Monty Moran has commented that average wages at Chipotle are already $9 and so the effect of raising the minimum to $10 would be “not too significant.” Like other image-conscious CEOs, Moran appears to prefer to have his Washington lobby shop, the NRA, handle the dirty work on this issue.

Moran is probably also reluctant to draw attention to his own paycheck. The company has an extremely top-heavy pay structure in part because it has two CEOs. In 2012, Moran cashed $55 million in stock options and his co-CEO, Steve Ells, cashed in $47 million. In 2013, both men received more than $20 million in vested performance stock and Ells exercised another $42 million in options. Altogether, their 2012-2013 “performance pay” generated a CEO pay subsidy for Chipotle of $69 million.

4. Dunkin’ Brands

At the helm of Dunkin’ Donuts and Baskin Robbins, CEO Nigel Travis cashed in on more than $20 million in stock options in both 2012 and 2013, generating a performance pay tax subsidy for the company of more than $15 million. For comparison’s sake, that $15 million would be enough to cover the cost of one public assistance program on which many fast food workers rely, the Supplemental Nutrition Assistance Program, for 9,608 households for a year.

Like the CEOs of Starbucks and Chipotle, Travis has taken a soft line on the minimum wage when speaking out personally. In one recent interview, he said, “We believe the minimum wage will go up. So there’s no point fighting that.” Maybe there’s no point for Travis. He’s got the NRA to do that job.

5. McDonald’s

In his first six months as CEO in 2012, CEO Donald Thompson took in more than $10 million in “performance pay,” which translates into a $3.5 million subsidy for the company. Last year, Thompson’s haul was more modest because he opted not to cash in any of his hundreds of thousands of exercisable “in-the-money” stock options.

Faced with a wave of worker protest actions, he may have decided to hold off on a big payout until the spotlight on the fast food giant is not quite so bright. On top of growing demands for living wages, the company has also faced a spate of wage theft charges. In 2013, the company settled a New York case for $500,000 and workers in two additional states recently filed similar suits. Due to the company’s notoriously low wages, McDonald’s workers rely on an estimated $1.2 billion in public assistance per year, according to the National Employment Law Project.

6. Darden

Among full-service restaurant chains, Darden has enjoyed the largest CEO pay subsidy. The owner of Olive Garden, Red Lobster, LongHorn Steakhouse, Bahama Breeze, and Capital Grille, Darden is the world’s largest full-service restaurant company. In 2012 and 2013, CEO Clarence Otis received nearly $9 million in fully deductible “performance pay,” which works out to a more than $3 million taxpayer subsidy for the company.

Darden pays at least 20 percent of its U.S. employees only the federal minimum wage for tipped workers, which has remained at $2.13 an hour for more than 20 years. Together with the NRA, they’re lobbying hard to keep it that way.

The NRA will be among the targets of a demonstration organized by several grassroots organizations on April 28 under the theme of “kicking corporate cash out of Congress.”

Restaurant Opportunities Centers United, which has built a network of thousands of restaurant workers and high-road employers to improve industry standards, is partnering with the National Domestic Workers Alliance and National People’s Action to urge elected officials to put the interests of regular people first. The following day, members of the NRA will converge in Washington for a major lobby push against increasing the minimum wage. 

It’s time the big restaurant CEOs were called out on their paycheck hypocrisy. For too long they’ve been sticking taxpayers with the bill for their bad pay practices —at both the bottom and the top ends of the corporate ladder.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-author of the Institute's 20th anniversary Executive Excess report, "Bailed Out, Booted, and Busted."