Corporate profiteers blamed price increases on labor costs — then gave big raises to CEOs

Some companies raised prices, blaming rising wages — but actually cut workers' pay, according to new report

By Igor Derysh

Senior News Editor

Published April 25, 2022 6:00AM (EDT)

CEO and founder of Amazon Jeff Bezos (Alex Wong/Getty Images)
CEO and founder of Amazon Jeff Bezos (Alex Wong/Getty Images)

More than a dozen major companies that blamed price increases on rising labor costs gave their top executives big raises — and some of them even slashed workers' pay, according to a new report.

Corporations like Amazon, Apple, McDonald's, Coca-Cola, Verizon and Starbucks cited growing labor costs when they hiked prices on consumers while behind the scenes their CEO-to-worker pay gap grew larger, according to an analysis from the left-leaning watchdog group Accountable.US.

Amazon, which cited "wage increases" while hiking prices on Prime memberships, gave new CEO Andy Jassy a $212 million compensation package, which includes stock options that vest over 10 years, a nearly sixfold increase from his previous pay as the head of Amazon's AWS cloud computing arm, while the median Amazon worker earned $32,855 in 2021. Apple, which cited growing labor costs as one of the reasons it raised prices on new models of the iPhone, increased CEO Tim Cook's pay by 568%, to $98.7 million, and increased its CEO pay gap by 464%, to a ratio of 1,447 to 1. Verizon complained to investors about "labor rates" while looking to hike prices and "pass-through" costs while its CEO pay gap increased by 48%, to 166-to-1, and its median worker pay fell by more than 28% to $48,000.

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The 15 companies listed in the report only scratch the surface. The median pay of S&P 500 CEOs rose by 19% to a record of $14.2 million in 2021 while the 4.7% increase in average hourly wages for workers was completely wiped out by rising costs, effectively resulting in a 2.4% decline in wages, according to Labor Department data. CEOs at roughly half the companies in the S&P 500 earned at least 186 times more than the median worker in 2021, according to a recent Wall Street Journal analysis, as median employee pay declined in one-third of the companies.

Despite low unemployment numbers and strong economic growth, working families have been squeezed amid the highest price increases in four decades. At the same time, corporate profits jumped by a record 25% in 2021.

"These higher prices were largely due to corporate profiteering, with S&P 500 companies enjoying near-record operating margins because they had the power to hike prices," the Accountable.US report argued.

"Considering corporate profits are at their highest levels in nearly 50 years, it's safe to say executives have had breathing room in their business decisions," Accountable.US president Kyle Herrig said in a statement to Salon. "Unfortunately, we're seeing a trend of highly profitable companies choosing to enrich a small group of investors and their executives at the expense of their customers and workers."

McDonald's last year blamed price increases in its restaurants in part on "labor inflation" and executives have said they are likely to raise prices again in 2022 despite acknowledging that rising costs "aren't likely to wipe out McDonald's recent gains in profitability," as The Wall Street Journal has reported. The company's net income rose by 59% to $7.55 billion in 2021 and it reported that more than $4.7 billion of that was spent on stock buybacks and shareholder dividends. CEO Chris Kempczinski's compensation last year was more than $20 million, bringing in 2,251 times more than the median employee. The median company salary dropped from $9,124 in 2020 to $8,897 in 2021.

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Billionaire investor Carl Icahn, a McDonald's shareholder, called out the company for this "injustice" in a letter to shareholders last Thursday.

"I find the Company's executive compensation, especially relative to the average employee, to be unconscionable," Icahn wrote. "For 2021, total Chief Executive Officer compensation was $20,028,132, an astounding 2,251x the average employee's total compensation of $8,897. The Board is clearly condoning multiple forms of injustice and I believe the majority of the public would agree."

Even as major corporations repeatedly express concerns over inflation and supply chain issues, billionaire CEOs have made out like bandits during the pandemic and economic recovery.

Billionaire Warren Buffett's Berkshire Hathaway conglomerate saw many of its subsidiaries raise prices to offset a "sharp rise" in labor and material costs, Insider reported last month. At the same time, the company's net earnings increased by 110% to over $90 billion — more than $27 billion of which was spent on stock buybacks. Buffett's net worth increased by 42% to $96 billion in 2021, and another 32% to $127 billion by April 2022, according to Forbes.

Coca-Cola, which was among several big companies that raised costs this year due to "labor problems," reported a 9% increase in revenue that was "driven by a 10% increase in prices," The Wall Street Journal reported earlier this year. The company, which owns a number of beverage brands, saw its net income grow 26% to $9.8 billion last year, $7.3 billion of which it paid in shareholder dividends. CEO James Quincey got a $6.5 million bump in compensation in 2021, earning 1,791 times more than the median company employee.

Starbucks profits increased by 352% — and CEO Kevin Johnson's pay went up by 39% to $20.4 million, 1,579 times more than the median employee.

Starbucks, one of the companies facing a growing nationwide unionization push, raised prices last year and earlier this year while predicting they would rise even more in the future. At the same time, Starbucks' profits increased by 352% after taking a hit during the pandemic and the company committed to $20 billion in stock buybacks and shareholder dividends over the next three years. CEO Kevin Johnson got a 39% pay hike to $20.4 million last year, earning 1,579 times more than the median employee.

HanesBrands executives in February told investors that the company hiked prices in response to "wage pressure" and other cost increases even as they bragged that the company's financial situation was "far stronger" now than before the pandemic. CEO Stephen Bratspies' compensation increased by more than 50% to $11 million, 1,564 times more than the median employee.

Under Armour executives, on a call with investors, said the company faced "rising wages" and other costs but previously reported that it improved its margins "primarily due to pricing benefits." In September, CEO Patrik Frisk said that high demand and supply chain issues presented an "opportunity for us to raise prices." Frisk in February touted record revenue and earnings, and his own compensation increased 111% to more than $15.5 million, or 1,485 times more than the median employee salary.

PepsiCo executives said on an earnings call that it expected "labor cost inflation to persist" but intended to "mitigate the impact of these pressures with its revenue management." The company hiked prices on its products last year and predicted additional price increases in 2022. At the same time, its net income climbed by nearly $500 million to more than $7.6 billion and it spent $5.9 billion of that on stock buybacks and shareholder dividends. The company projected it would spend even more on shareholder handouts in 2022. CEO Ramon Laguarta saw his compensation increase by more than $4 million to $25.5 million, or 488 times more than its median employee earns.

Domino's CEO Ritch Allison last year complained about labor shortages as he teased price hikes for consumers to offset wage increases. But the company's median worker pay actually fell, from $22,076 in 2020 to $17,782 in 2021. At the same time, Allison's compensation increased from $6.3 million to $7.1 million, a pay ratio of 401-to-1.

Kraft Heinz executives cited "labor constraints" and "production constraints" to investors even as it hiked prices and saw bigger profit margins than prior to the pandemic. CEO Miguel Patricio got a 40% pay increase to $8.6 million, making 190 times more than the median employee. The company's net income grew by 183% to more than $1 billion in 2021 and it spent nearly $2 billion on shareholder dividends.

Goodyear bragged about its "highest fourth-quarter revenue in nearly 10 years," while median worker salary fell by $5,000 and CEO Richard Kramer was paid $21.4 million.

Goodyear, the tire giant, raised prices four times last year, which the company said was in response to growing labor costs and other pressures. CEO Richard Kramer told investors in February that the company "achieved our highest fourth-quarter revenue in nearly 10 years" due to the higher prices. Meanwhile, median worker salary fell from $48,659 to $43,746 while Kramer's compensation increased from $16 million to $21.4 million, 490 times the average employer wage.

The Biden administration has made fighting inflation a top priority amid staggering price increases but has also sought to make clear that corporate profiteering is a major contributor to rising prices. Biden earlier this year called out meatpackers for price gouging, arguing that they had raised prices beyond the increases to their own costs.

"In too many industries, a handful of giant companies dominate the market," Biden said in January, arguing that many big companies are "making our economy less dynamic, giving themselves free rein to raise prices, reduce options for consumers or exploit workers.

Biden last year issued an executive order with 72 initiatives targeting a wide range of industries, including provisions to crack down on "anti-competitive pricing" and enhance consumer protections. He has since pushed the Federal Trade Commission to investigate price gouging by oil companies and prodded the Agriculture Department to investigate poultry and pork companies. The push also includes the Federal Maritime Commission, which Biden pressed to investigate large shipping companies in the supply chain.

Accountable.US backed Biden's efforts to target corporate profiteering in response to rising inflation.

"Can a company that posted huge new profits over the last year while rewarding shareholders and executives by millions honestly say it needed to raise prices so high, or pay their workers so little?" Herrig questioned. "Reining in runaway corporate greed is key to bringing down costs for everyday families."

Read more on corporate greed and inflation:

By Igor Derysh

Igor Derysh is Salon's senior news editor. His work has also appeared in the Los Angeles Times, Chicago Tribune, Boston Herald and Baltimore Sun.

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