Amazon was in the news last month. Amazon paid $0 in federal income taxes last year (2018), despite making record profits of $11.2 BILLION.
This whole thing makes better sense if we answer the question: why do we, the general public and corporations pay taxes? The short answer is that we benefit from having a government, and that government has bills to pay.
The benefits of a government? The short list: (1) infrastructure (e.g., roads and airports); (2) defense (e.g., army); and (3) rules (e.g., courts and enforcement agencies to make sure everyone plays by the rules, i.e., stability).
The cost of any one of those things is too great for any one person or company to invest in and see a justifiable return; but when we all invest a portion, the return is/should be worth it.
Back to Amazon. Over 2018, Amazon’s stock increased from $1,229/share on January 5, 2018 to $1,539 on January 2, 2019. That’s a 25% increase in value (compare that US Dept of Treasury rates on 10-Year Treasury Notes, a proxy for what you could be getting on your savings account balance, which went between 2.4% and 3.2% in 2018). Amazon was a WINNER in 2018. A winner that made it in the U.S. economy. And yet, they paid nothing towards the system.
Well they created a lot of jobs? Okay. In their 2017 Annual Report, reports 560,000 employees (compare to 140,000 Boeing employees, or x4 as much). They actually go on to claim having added more than 130,000 jobs (Page 4 of CEO Jeff Bezos letter to shareholders).
But are those 130K jobs good jobs? In their pay ratio disclosure, Amazon discloses that their media compensated employee made $28,446 in 2017. (Compare that to Boeing, whose median employee made $100K+, or about x4 more.)
Put another way: HALF OF AMAZON’S EMPLOYEES MADE LESS THAN $29K IN 2017. That translates to less than $14/hour (assuming 40-hour weeks, 52 weeks/year).
How does that compare to their CEO compensation? Jeff Bezos – arguably the most visible executive at Amazon – is reported to have been compensated $1,681,840 ($1,600,000 of that being for “security arrangements”). Mr. Bezos has taken a ceremonial pay freeze and only drew a salary of $81,840 in 2017. That results in a reported pay ratio of just 1-to-59 (compare to the 1-to-166 at Boeing). Mr. Bezos’s compensation isn’t what caught my attention though.
Jeffrey Wilke, CEO of Worldwide Consumer had reported compensation in 2016 of $32,958,114.
The public company reporting requirements only require a statement on the CEO-to-median-employee ratio. So what was Mr. Wilke’s pay ratio compare to 2017 median employee salary? 1-to-1,158! (I can’t find their media employee compensation report for 2016). Even considering that his stock compensation is only vested (paid) every three years, that’s still a 1-to-386 ratio.
Looking back at the previous blog post, that arrived at a baseline of 1-to-80: EDITORIAL: W.T.F.!
So: (1) one of the most “winning” companies in the country paid nothing for working within the government; and (2) it felt one its executives brought enough value to be paid more than 1,000 times more than its median employee. What else could there be?
In 2015, the “living wage” (or what the “working poor” would need “to achieve financial independence while maintaining housing and food security”) was $15.12/hour ($1 more/hour than half of Amazon’s workforce) or $31,449/year ($3K/year more than half of Amazon’s workforce). What happens when someone doesn’t make a living wage? They get government assistance, e.g., housing assistance or food stamps. And that actually happened with Amazon’s employees.
What does that mean? You and me, friend, whose reading this – our taxes effectively subsidized Amazon’s business and shareholders.
Also, $15.12/hour is a national number. Amazon has a registered address in Seattle, Washington. The living wage in Seattle? $34.46/hour. More than double.
EDITORIAL: W.T.F.!
Let’s look at some trade offs.
- What if in 2017, Amazon only had a 14% increase in stock value instead of 25%? How many employees could they have given $1K/month ($12K/year) raises to? Amazon’s market capitalization on 1/3/2017 = $369B. Amazon’s market capitalization on 12/29/17 was $576B. If they had only seen a 14% increase = $420B maket cap. The difference? $156B. Divided by $12K discounted at 5% rate to account for future value (an effective value of $240K)? 650K employees (more than its workforce) could have received a $1,000/month raise, and Amazon could still have had a 14% annual increase in stock value. Put another way – it could have given +$24K/year to the bottom half of its employee base.
- What if, instead of $32M, their CEO of Worldwide Consumer made $10M? How many employees could they have given $1K/month ($12K/year) raises to? $22M divided by $12K = 1,833 employees.
So who determines what CEOs get paid? Shareholders and the board of directors. Amazon reported 9 independent directors (all independent except Bezos) in the same proxy where Mr. Wilke was paid $32M: (1) Tom Alberg; (2) John Seely Brown; (3) Jamie Gorelick; (4) Daniel Huttenlocher; (5) Judith McGrath; (6) Jonathan Rubinstein; (7) Thomas Ryder; (8) Patricia Stonesifer; and (9) Wendell Weeks. Huttonlocher, McGrath, and Rubinstein are on the “Leadership Development and Compensation Committee”. The Board recommended a vote “for” approval of their executive compensation structure.
EDITORIAL: What the hell, guys?
This was all in the name of “long-term shareholder value.” Which will be for another post.
Again, I ask – is this really how we want to be valuing people? Such that an executive can make x1000 more than another company employee? Are you an Amazon shareholder that supported this executive compensation?
PAY YOUR PEOPLE,
The Anxious, Amateur Economist
The Anxious, Amateur Economist 