My wife and I hosted brunch with our friends the other weekend. They’re big campers and had come back from a trip to Yosemite. As it is a significant drive away, they stopped for food on the way there. They stopped at McDonald’s, but, to my surprise, said they would never go again because of how expensive it was for their breakfast.
This was surprising to me because I love McDonald’s. Much to my wife’s chagrin, I stop there for breakfast on the way to work at least once a week. Sausage McMuffin with Egg and a Large Diet Coke, please. $5.63 at the first window.
I have no qualms with saying: it is delicious.
I understand that prices differ from franchise to franchise and if you’re not a savvy order, it’s possible to ring up a big (?) bill. Nevertheless, it got me thinking about how those extra dollars and cents flow to executives and employees.
We all know, McDonald’s is practically shorthand for Minimum Wage. McDonald’s pretty much owns it. In 2016, they ran an advertising campaign on the premise that working at McDonald’s was the best FIRST (entry-level) job someone could have.
I’m actually doing this calculation before looking at their disclosures. Assuming about half their workforce makes minimum wage, and half of them (1/4) work part-time, what should we expect their median income to be? California’s minimum wage is $12/hour. Assuming part-time equals 20 hours/week, that means the bottom quarter of employees would make $12,000/year from McDonald’s, and the other next quarter of employees, would make $24,000/year from McDonald’s. Median does not equal mean, so I would hope (?) McDonald’s median employee compensation would be about $24,000.
Apply that figure to the generous, somewhat reasonable CEO compensation factor from the very first post on this mediocre blog of x80, I get $1,920,000. Now time to check…
Googling, googling, googling. Scrolling, scrolling, scrolling. Reading, reading, reading…and wrong on both counts.
Per their latest proxy filing, median employee salary, who they say is a part-time employee in Hungary, is only $7,473. Assuming a 20/week job, that’s about $7.50/hour. Given that the median (the half-way point) employee is part-time, that indicates that more than 50% of the workforce is part-time. Unfortunately, I can’t tell from their disclosures whether that’s by choice, or if they would want to work full-time.
So I well overestimated their median employee, and unfortunately underestimated their CEO compensation. Per their latest proxy filing, in 2018, McDonald’s CEO STEPHEN EASTERBROOK made $15,876,116 or 2,124 times the median employee. (That’s actually down from the $21 Million Easterbrook made in 2017.) I’ll look back, but I think that is the worst ratio I have ever come across. The McDonald’s CEO makes in ONE DAY almost six times what their median employee makes all year.
Will this make me stop ordering my Egg McMuffin? Probably not. Will it taste as good? No, I don’t think so.
Pay your people,
The Anxious Amatuer Economist
P.S. – an update on the Business Roundtable, the group of companies and CEOs who claimed they would do better and be better corporate citizens. Last time we checked in, the least worst offender of bad CEO pay ratios was water heater manufacturer AO Smith’s CEO, Kevin Wheeler, whose $3.8M compensation package was x200 their median employee. The WORST offender was the consulting firm, Accenture’s group CEO Pierre Nanterme, whose $22M in 2018 was x555 their median employee. Let’s look at the next five signatories to the new Statement on the Purpose of a Corporation…
Number Six: The AES Corporation, an energy company. Their median employee income for 2018 was (!) $109,297. President and CEO, Andres Gluski’s 2018 income was $9.7 Million, resulting in a ratio of 144:1 for their global employee base and an astounding 89:1 for their US employees. HOLY CRAP. I have to admit, that is pretty responsible. Also checking his income over the last two years, it has largely remained unchanged – this is not a fluke.
Number Seven: Aflac, the duck insurance company. Their median employee income for 2018 was $52,756. Chairman and CEO, Daniel Amos’s 2018 income was $17.5 Million, resulting in a ratio of 332:1.
Number Eight: AK Steel Corporation. There median employee income for 2018 was $86,804. CEO, Roger K. Newport’s 2018 income was $8.6M, resulting in a ratio of 88:1. BOOM. This is giving me life on a Saturday morning. This is a high since 2016, where his income was reported as $4.1M. Hopefully, it doesn’t continue to rise over their median income.
Number Nine: Allergan PLC, a pharmaceutical company known for being the manufacturer for Botox. Their median employee income for 2018 was $89,976. Chairman and CEO Brent Saunders’s 2018 income was $6.6M, resulting in a ratio of 74:1!!! BUT WAIT. In 2017, Mr. Saunders’s reported income was $32.8M, which would result in about a 364:1 ratio….
Number Ten: Alliant Energy, a public utility based in the MidWest. Their median income was $98,700. Chairman, President, and CEO, John Larsen’s 2018 income is reported as $6,520,709 (which has largely been unchanged in the last two years), resulting in a ratio of 66:1. DING DING DING.
So now looking at the first 10 (alphabetical) signatories to the new Statement on the purpose of a Corporation: (A) AO Smith gets knocked out of the least worst and is replaced by Alliant Energy, with a 66:1 ratio. (B) Accenture remains the grossest with a staggering 555:1 (though not as bad as McDonald’s). And adding a new tracker: (C) We now have three members of what I’ll call the Below 100 Club: (1) Alliant Energy; (2) The AES Corporation; and (3) AK Steel Corporation.
Thanks for joining me on this journey.
The Anxious, Amateur Economist 