Poverty wages pose risk to fast-food industry’s profits, experts say

Fast-food workers’ fight for better pay has taken on new urgency as a report published Tuesday found the wage discrepancy between workers and their CEOs is the highest of any sector — likely hurting employees' morale and posing a risk to the industry’s profits, experts say. In 2013, executive pay was more than 1,000 times the average worker’s wage.

The report, by the liberal think tank Demos, calculated that average income inequality within the fast-food industry is more than double that of other industries in the accommodation and food services sector, which has already had the highest annual average CEO-to-worker compensation ratio of any sector since 2000.

“We found that [the] fast-food [industry] is acutely out of line with the rest of the economy,” said Catherine Ruetschlin, a policy analyst at Demos and author of the report. CEOs at fast-food companies now earn four times more than they did in 2000, while workers’ wages increased 0.3 percent, according to the report.

The “extreme disparity” will hurt the industry's bottom line and "be an increasing concern for the economy and shareholders,” Ruetschlin said.

Remuneration strategies that reward strong quarterly results with higher pay — 86 percent of the compensation for the highest-paid fast-food CEOs comes from stock awards and options — put pressure on short-term results. This “misallocation of resources,” Ruetschlin said, will lower worker morale, slow the nation's economic recovery and dampen consumer demand.

“The negative consequences are surfacing as operational issues, legal challenges and diminishing worker and customer satisfaction,” she said.

This issue emerged in McDonald’s latest annual report, which said that recent labor unrest over low pay, as well as public perception of poor working conditions, poses a risk to shareholders’ interests. A wave of strikes that started in 2012 put the industry at the center of the minimum-wage debate — and bad publicity could pose a threat to the company’s long-term performance, McDonald's acknowledged. 

"The impact of campaigns by labor organizations and activists," and "the increasing focus on workplace practices and conditions and costs and other effects of compliance with U.S. and overseas regulations affecting our workforce and labor practices … and our exposure to reputational and other harm as a result of perceptions about our workplace practices or conditions or those of our franchisees," are listed as sources of risk to McDonald's performance in its 2013 annual report.

A series of lawsuits against McDonald’s corroborates this fear. A franchise owner in March settled a lawsuit for $500,000 to workers in New York for unpaid laundry allowances, uncompensated work time and unlawful wage deductions. The company also faces class-action lawsuits in Michigan and California for alleged wage theft.

McDonald’s did not respond to Al Jazeera’s request for comment Tuesday. Burger King also declined to comment.

But Cherri Delesline, a McDonald's employee and mother of four in Charleston, S.C., told Al Jazeera the report confirms what she said she has long known: “While CEOs make millions of dollars in profits, we still can't afford to pay our rent or buy clothes for our children. The fast-food industry's low wages aren't just bad for the workers and our communities, they hold back our economy and jeopardize company profits."

Scott Stringer, New York City's comptroller, said the report carries "national consequences." He urged investors to rethink how companies can create “sustainable value” to secure growth.

“Rising pay inequality has dire consequences for workers in New York City and beyond,” he said. “As a fiduciary, I am also concerned with the impact of pay disparity on the city’s pension funds, which have long recognized that excessive pay disparities pose a risk to shareowner value.”

Referencing the hundreds of workers who have walked off their jobs since groups such as Fast Food Forward started organizing strikes to demand raising poverty wages and better working conditions, Stringer said, “I think the discussion is appropriate to move into the boardroom — not just on the streets — so we can actually resolve some of these issues.”

In New York, 74 percent of small-business owners said they support raising the minimum wage and indexing it to the cost of living, according to a poll published Tuesday by the Small Business Majority, a national nonprofit organization supporting small enterprise.

In the poll, the small-business owners said the move would boost the local economy by increasing lower-income workers’ disposable income, which would drive up demand for their businesses’ goods and services. More than 80 percent of business owners already pay their employees more than the federal minimum wage, according to the poll.

“In New York, the cost of living is so high that the current federal minimum wage just isn’t practical. That’s why it’s important for local authorities to have the ability to set a minimum wage that works for the cost of living in a particular city or county,” Matt Grove, owner of Bagel Grove in Utica, N.Y., said in a Small Business Majority statement.