To the disappointment of many on the left, President Joe Biden’s Covid-19 relief package did not include an increase in the federal minimum wage, dimming the prospect of setting a national wage floor at $15. But there is another step the administration can take to push companies to pay more: disclosure.
There’s a business maxim that goes, “What gets measured, gets managed.” If it’s not possible to pass legislation to impose higher minimum wages, the administration can still put upward pressure on wages by requiring companies to disclose data on their workers’ take-home pay. Pay disclosures would let employers, employees and investors all know if workers are earning enough to support themselves and their families.
Most Americans believe that anyone who holds down a full-time job ought to be able to support a family on their earnings. Yet all too often, that’s not the case, either because a worker’s wages are too low, they work too few hours or both.
Even in the tight pre-pandemic labor market, a third of working Americans were in jobs whose median wage was below $15 an hour. A single parent working a 40-hour week at $15 an hour makes $2,520 a month. Even in an inexpensive place like Oklahoma City, that’s 75 percent of subsistence.
What’s more, many service workers, like cashiers and nurse’s aides, also get too few hours, since “full time” can be as few as 30 hours a week, and many workers aren’t offered full time. That’s why a disclosure rule should be based on total take-home pay, not just hourly wages.
Paying workers too little upfront often winds up costing more down the line. Underpaid workers’ health suffers and even if they are lucky enough to have insurance, it’s often way too expensive. Financial insecurity causes so much stress that even small wage increases can lead to improved mental health, better sleep, and healthier eating. Children of financially insecure parents are more likely to have poor health, do poorly in school and end up financially insecure themselves.
Taxpayers often pay the price: Government aid to underpaid workers, in the form of Medicaid, nutrition assistance and other government programs, amounts to more than $100 billion a year. Meanwhile, for employers (and their investors), what goes around comes around. Low pay reduces productivity; financial insecurity makes it hard to focus and be productive. It also fuels high employee turnover, which further lowers productivity and reduces customer satisfaction. This can cost large companies tens of millions of dollars a year.
To chart a different path for the country, we need companies to invest in good jobs, to recognize that paying their workers better can save more in the long run. But the current incentives facing executives — stock-based compensation, short tenures, tax breaks for money spent on capital but not on people — discourage such investment.
Pay disclosure can change that calculus: Once take-home pay data are public, investors, consumers, and even corporate boards will be able to compare one company’s treatment of workers to another, and will force companies to do better.
Sound too good to be true? BlackRock and other investors convinced companies to invest in greener operations by threatening to vote out lagging CEOs or divest from their companies. The same pressures can work for good jobs.
Here are three ways disclosures of take-home pay could encourage higher wages.
First, a pay disclosure requirement would force executives to face facts they are currently avoiding. (We’ve seen pay distributions at several Fortune 500 firms. They’re bad.) When we show company leaders that the majority of their full-time workers earn less than $30,000 per year or that less than a third of full-time workers earn a living wage (both real examples from our work), they’re shocked. For various reasons — including that they benchmark against other poor employers, look at the wrong data, and are disconnected from their workers — many executives don’t understand quite how bad their workers’ jobs are. Of course, understanding alone won’t often spur a response, but in our experience, it does make company leaders more receptive to change.
Second, research is increasingly demonstrating that the assumed tradeoff between good jobs and profitability is not real. Yes, companies can try to maximize profits by underpaying employees and managing the resulting high turnover and low productivity. But they can do just as well with high pay and the resulting low turnover and high productivity. Mandatory reporting will create peer pressure by highlighting the good jobs leaders, like Costco, who follow the latter model. Not coincidentally, these companies usually have strong operations, high customer loyalty, and excellent financials. Executives at poorly performing companies will have to explain to their investors and boards why they are so far behind and why they still think bad jobs are the way to go.
Third, investors and boards know you can only defy public opinion for so long — and pay disclosure will hasten the reckoning. Consumers, particularly millennials, increasingly prefer companies that are transparent and socially responsible. That’s one reason why Unilever committed to working only with suppliers that pay a living wage. Organizations can use transparent pay data to score companies’ pay practices so interested consumers know where to take their business. The evidence — from companies like Costco and H-E-B — that higher wages do not mean higher prices makes consumer action a credible threat. Public pay data may also raise the likelihood of legislation that significantly raises wages. Investors and boards will push companies to get ahead of any consumer or regulatory action.
There is precedent for asking companies to report pay data: the Dodd-Frank Act passed after the Great Recession required that companies disclose the ratio of CEO to median worker pay. Intel’s detailed pay reporting, developed in response, offers a good model for what disclosures could look like under our proposed rule. Intel reports the number of employees that fall into each take-home pay band, segmenting the data by race and gender. The requirement would not be burdensome; companies already collect the relevant data, and we know from experience the analysis is straightforward.
Building an economy founded on good jobs will require deep, structural transformation, but you can only manage change if you measure. The best way to spur movement towards creating good jobs may be to start requiring that companies publish take-home pay data.
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