How Taxpayers Subsidize the Multi-Million Dollar Salaries of Restaurant CEOs

| Tue Apr. 22, 2014 2:35 PM EDT
Starbucks CEO Howard Schultz raked in $236 million in taxpayer-subsidized compensation over the past two years.

As the fight to raise the minimum wage has gained momentum, the restaurant industry has emerged as the biggest opponent. This is no surprise, since the industry claims the highest percentage of low-wage workers—60 percent—of any other business sector. Front-line fast-food workers earn so little money that about half of them rely on some form of public assistance, to the tune of about $7 billion a year. That hidden subsidy has helped boost restaurant industry profits to record highs. In 2013, the industry reaped $660 billion in profits, and it in turn channeled millions into backing efforts to block local governments from raising pay for low-wage workers and to keep the minimum wage for tipped workers at $2.13 an hour (exactly where it's been for the past 22 years). But public assistance programs aren't the only way taxpayers subsidize the restaurant industry.

A new report from the Institute for Policy Studies finds that the public has been contributing to excessive CEO compensation as well, helping to widen the gap between the lowest-paid workers and their bosses. Thanks to a loophole in the tax code, corporations are allowed to deduct unlimited amounts of money from their tax bills for executive compensation, so long as it comes in the form of stock options or "performance pay." The loophole was the inadvertent result of an attempt by Congress to rein in CEO compensation by limiting the tax deduction for executive pay to $1 million a year. That law exempted pay that came in the form of stock options or performance pay. This loophole has proven lucrative for CEOs of all stripes, but it is particularly egregious in an industry that pays its workers so little that it is already heavily subsidized by taxpayers. 

According to IPS, the CEOs of the 20 largest companies that belong to the National Restaurant Association personally reaped more than $660 million over the past two years in performance pay—compensation that collectively ended up cutting their companies' tax bills by more than $230 million. That hefty subsidy is enough to cover the average cost of food stamps for 145,000 families for a year, according to IPS.

Topping the list of executives raking in big bucks with help from the taxpayers is the CEO of Starbucks, Howard Schultz, who was paid $236 million in performance pay and other deductible compensation over the past two years, an outlay that saved the company $82 million in taxes. That $82 million tax subsidy could easily translate into a living wage pay raise for more than 30,000 baristas, who now make on average $8.79 an hour.

There's also Yum! brands CEO David Novak, who over the past 14 years has been the beneficiary of a special tax-deferred retirement plan not available to ordinary workers. His subsidized retirement assets now top more than $232 million. Meanwhile, his employees at Taco Bell, Pizza Hut, and KFC earn so little money that they're estimated to rely on $650 million in public assistance every year. IPS figures that Novak's retirement benefits alone could save taxpayers $61 million in public assistance costs annually if they were instead used to raise the pay of 16,000 of Yum!'s low-wage workers to $15 an hour, a move that would take about 9 percent of the company's employees off the public dole. Instead, though, Yum! officials have been working behind the scenes to fend off legislation that might give their workers a paid sick day now and then. No wonder fast-food workers are going on strike.