Federal contracts drive CEO pay gap

Policy institute study says discrepancy can affect worker morale

CEO pay has climbed in recent years thanks to rising corporate profits and a booming stock market.

But a new study says taxpayers also have contributed to the largesse.

CEO pay is relatively high at corporations with the most lucrative federal contracts and those enjoying the biggest federal subsidies, according to the study by the Institute for Policy Studies in Washington, D.C.

At many of these companies, CEOs generated more than 100 times worker median pay, though the ratios weren’t that high for the two Arizona-based companies mentioned — Pinnacle West Capital and Insight Enterprises.

Public corporations have reported CEO compensation in a standardized way for more than two decades but only recently were required to list median pay for their employees.

A report earlier this year by The Arizona Republic noted that CEOs of larger Arizona-based companies overall earned about 80 times the median pay of workers.

The Institute for Policy Studies report argues that excessive CEO pay undermines worker morale, leading to lower productivity and higher turnover, and contributes to the wider societal rich/ poor gap.

“Taxpayers should not be subsidizing extreme pay gaps in any way, whether

through tax, contracting or subsidy policies,” said report author Sarah Anderson, in a prepared statement.

Her report cited a 2016 Stanford University survey indicating the public believes CEOs are vastly overpaid, though respondents were split over whether the government should do anything about it.

In 2017, the 50 public corporations that received the most lucrative federal contracts paid their CEOs an average of 188 times what median employees earned at those companies.

The figure was lower, 68 to 1, at Insight Enterprises, a Tempe-based company that provides information-technology services.

The study cited compensation of $4.5 million for CEO Kenneth Lamneck against average Insight worker pay of $65,752.

The study said Insight has $693 million in federal contracts.

Other top federal contractors cited in the CEO pay report that also have a large Arizona employment base include Boeing, General Dynamics, Raytheon, Honeywell International and United-Health Group.

Among the 50 public firms that received the largest federal subsidies — for research grants, low-interest loans and the like — CEOs on average earned 153 times what their workers were paid.

Pinnacle West Capital, parent of utility Arizona Public Service, was the only Arizona-based company listed in this group.

Pay for the company’s CEO, Donald Brandt, was $10.5 million, compared to a median $128,140 for company employees. Pinnacle West had the highest median employee pay of any Arizona-based company examined in the earlier Arizona Republic report.

Pinnacle West received a modest $2.9 million in federal subsidies, though that was enough to make the list of top 50 firms receiving subsidies, according to the Institute for Policy Studies report.

Other companies receiving large federal subsidies that also have a big Arizona presence include defense contractors Raytheon and Boeing, heavyequipment maker Caterpillar and American Airlines, which receives subsidies for providing air service to small towns, according to the study.

The report argued that employers such as Walmart also benefit from indirect subsidies, as a large share of their workers don’t earn high pay and thus often must rely on public assistance. Indirect subsidies weren’t examined in the report.