US Investors Back Business Case for Living Wage

ICCR initiative recommends board compensation committees tasked with closing CEO-to-median worker pay gap. 

Investors have increased their push on US companies to pay employees the living wage and to address the CEO-to-median worker pay gap, stressing the reputational and systemic risks firms face.  

Nearly 140 investors representing US$4.5 trillion in AUM endorsed a statement from the Interfaith Center on Corporate Responsibility (ICCR), which called on US companies to take steps to pay employees a living wage. 

Gina Falada, Associate Director for Advancing Worker Justice at the ICCR, told ESG Investor that workers’ rights is an “increasing priority for responsible investors in the US” and beyond.  

“An increase in the federal minimum is long overdue,” she said. “Any of the investors, workers, senators and NGOs we work with would agree that that’s a key priority.” 

Falada added that investors broadly acknowledge the business case for a living wage in terms of saving on retention, recruitment, training costs, increased productivity and worker satisfaction. 

The US federal minimum wage has remained US$7.25 an hour since 2009. Due to cost-of-living increases, the ICCR said a worker earning the federal minimum wage today has “effectively received a 28% pay cut”. 

Meanwhile, the average CEO at S&P 500 companies earned more than US$15 million last year, thus further stretching the pay gap between executives and employees.  

Through endorsing the ICCR’s statement, investors called on US firms to adopt and disclose a policy and strategy to take steps towards paying its workers a living wage, as differentiated from a fair, market, minimum, or legally compliant wage. This includes lobbying alignment, with companies needing to periodically disclose progress toward “meaningful” policy implementation. 

During the 2023 proxy season, ICCR’s members filed 454 shareholder proposals across a range of environmental and social themes, including 37 proposals focused on workers’ rights. 

Systemic, reputational risks 

The statement included five short- and long-term recommendations for US companies that would collectively “increase investors’ understanding of company wage practices and progress toward paying living wages to their direct employees and contract workers”.  

Another recommended step is the disclosure of wage-setting strategies and compensation metrics. This includes wage gap analysis detailing the number of workers below a living wage, the median employee wage and lowest starting wage. 

It additionally requested quantitative adjusted and unadjusted median racial and gender pay ratios across all employees. 

The ICCR statement also recommended that firms end the payment of subminimum wages – a lower wage than the federal or state-mandated minimum wage. 

The ICCR said wage increases for the lowest earners can help address broader systemic risks such as income inequality and gender and racial disparities in the US labour market that can have long-term societal and economic impacts. 

According to the statement, gender and racial gaps created US$2.6 trillion in losses to US GDP in 2019, while eliminating racial disparity would add up to US$5 trillion to the nation’s economy over five years. 

Data from Oxfam US found that women, people of colour, workers under 25, and working parents are most likely to make below US$15 an hour.  

Falada said that as well as benefiting from better retention, recruitment, training costs, increased productivity and worker satisfaction, companies could also avoid reputational risks. 

“We’ve seen a lot of workers organising unions and going on strike due to pay, and corporations have come under fire for union busting or anti-union activities,” she added.  

“When workers are organising around a wage ask and a company is being resistant there can be really negative media coverage and reputational risks.” 

More than 450,000 workers have been involved in over 300 strikes this year. This number could pass the 485,000 workers that went on strike in 2018, making it the worst year of strikes since 1986. 

Following a well-publicised six-week strike – which was even attended by US President Joe Biden – the United Auto Workers have ratified an agreement with Ford and General Motors that includes a 25% wage increase. 

At the end of last month, firms including Amazon and Walmart were accused of “aggressive union-busting activities” by Olivier De Schutter, a UN-appointed independent expert on extreme poverty and human rights. 

He said that the US is “turning a blind eye” to the union-busting activities of its “most powerful corporations” and allowing them to “steamroll workers into accepting poverty wages while corporate revenues soar”. 

Closing the CEO pay gap 

One of the statement’s five recommendations is that the scope of board compensation committees should be expanded to include compensation practice oversight for “all levels of employees and contract workers”. 

It also said these committees should disclose how companies are addressing the gap between CEO and median worker pay. 

Falada stressed that ICCR is looking at “excessive” CEO pay, as well as CEO-to-median worker pay ratios.  

“Part of what it will take to raise wages for the average worker is reduced spending on excessive CEO pay,” she said., adding that closing the CEO-to-worker pay gap is a key part of the living wage conversation and an indicator that the ICCR is using to identify and engage with companies.  

The average US annual salary is US$54,132, while S&P 500 CEOs earned 291 times that figure, with median annual earnings of US$15.3 million. Research also highlighted that average US CEO compensation has increased by 940% since 1978, while worker pay has only risen by 12% over the same period.   

US shareholder advocacy NGO As You Sow’s tenth annual 100 Most Overpaid CEOs list, published last week, showed that overpaying senior management leads to underperformance. Further, companies with the most overpaid CEOs had lower shareholder returns than the average S&P 500 company, according to the report.  

It also found that the annual pay for CEOs has continued to grow and that the average pay of the 10 most overpaid had jumped from US$56 million in the first year of the report to an average of US$88 million this year, marking a 59% increase. 

Falada highlighted the living wage initiative is a “multi-year priority” and that it will be used in engagements with focus companies going forward.  

She added that ICCR is keen for investors to use the statement as an engagement tool to “make an investment case” on the importance of closing the gap between current wages and the living wage from both a financial and a human rights perspective. 

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