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IPS Report: Pay Subsidies for CEOs Opposed to Minimum Wage Increase

An Institute for Policy Studies report released today puts a price tag on how much taxpayers are subsidizing exorbitant executive pay at the nation’s top restaurant chains.

While restaurant executives are fighting living wages for their workers, they’re benefiting from tax subsidies for their own pay.

Washington, DC, April 22, 2014—An Institute for Policy Studies report released today puts a price tag on how much taxpayers are subsidizing exorbitant executive pay at the nation’s top restaurant chains.

The report focuses on the loophole that allows corporations to deduct unlimited amounts from their income taxes for the cost of executive compensation—as long as the pay is in the form of stock options and other so-called “performance pay.” This loophole serves as a massive subsidy for excessive executive compensation.

Restaurant Industry Pay: Taxpayers’ Double Burden calculates the cost of CEO pay subsidies at the 20 largest corporate members of the National Restaurant Association, a leading opponent of efforts to raise the minimum wage. The NRA is organizing a major lobby drive in Washington on April 29-30.

Key findings:

  • During the past two years, the CEOs of the 20 largest NRA members pocketed more than $662 million in fully deductible “performance pay,” lowering their companies’ IRS bills by an estimated $232 million. That would be enough to cover the cost of food stamps for more than 145,000 households for a year.
  • One NRA member —Starbucks— was off the charts. CEO Howard Schultz raked in $236 million in exercised stock options and other “performance pay” over the 2012-2013 period. That translates into an $82 million taxpayer subsidy—enough to raise thepay for more than 30,000 baristas to $10.10 per hour for a year of full-time work.
  • The next four largest beneficiaries of the CEO pay subsidy are fast food corporations. Chipotle, Yum! Brands (owner of Taco Bell, KFC, and Pizza Hut), McDonald’s, and Dunkin’ Brands each raked in CEO pay subsidies ranging from $12 million to $68 million over the period.
  • Among full-service restaurants, the company that has enjoyed the largest CEO pay subsidy is Darden, the owner of Olive Garden, Red Lobster, and several other chains. CEO Clarence Otis took in nearly $9 million in fully deductible “performance pay” over the years 2012 and 2013. That works out to a more than $3 million taxpayer subsidy.

“These restaurant CEOs aren’t the only executives gorging on taxpayer-subsidized bonuses,” said Sarah Anderson, Global Economy Project Director at the Institute for Policy Studies. “But their pay practices deserve extra scrutiny because of the high social costs of this industry’s low-wage model — a model they’re seeking to preserve by fighting minimum wage increases.”

On a positive note, the report points to high levels of public support for raising the minimum wage as well as growing bipartisan support for closing the executive “performance pay” loophole. House Ways and Means Committee Chair Dave Camp included a fix in his recent tax reform plan (Section 3802). Democrats have introduced similar proposals in the Senate (S. 1476) and the House of Representatives (HR 3970) that would generate an estimated $50 billion over 10 years.

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