Workers Lose Out as Stock Buybacks Jump and CEO Pay Skyrockets, Study Says

The pay ratio between CEOs and their workers widened by 12.9% from 2019 to 2024, according to a new report on executive compensation. (Spencer Platt/Getty Images)

Corporations with the lowest-paid global workforce continued to focus on compensating their CEOs and buying back stock instead of investing in their companies and employees, according to research published on Thursday.

Consider Lowe’s CEO Marvin Ellison, who received a compensation package valued at $20.2 million last year, which is 659 times the median global worker pay at the home improvement company, according to Executive Excess, a report by the Institute for Policy Studies, a nonprofit research center.

Despite the large pay gap between Lowe’s CEO and its workers, the company spent $46.6 billion over six years through 2024 to repurchase shares. That is money that could have been plowed into annual bonuses of $28,456 for each of its 273,000 global employees, or into hiring about 88 employees at each of its 1,748 stores, the report said.

Lowe’s didn’t respond to requests for comment.

The institute’s research found Home Depot and Walmart, in addition to Lowe’s, to be the leading “buyback barons,” among 100 S&P 500 corporations with the lowest median worker pay. The nonprofit has reported on these so-called low-wage 100 companies for the past three years, highlighting excessive pay gaps between executives and workers and how stock buybacks often exacerbate the gaps.

Home Depot declined to comment on the report. Walmart didn’t respond to requests for comment.

“CEOs get 80% of their compensation in some form of stock-based pay, so there’s an incentive to spend money on stock buybacks,” says report author Sarah Anderson, director of the institute’s Global Economy Project. “Every dollar spent on buybacks is a dollar not spent on worker pay.”

When companies repurchase stock, they reduce the number of shares on the open market, which has the effect of increasing earnings per share. Shareholders often cheer the move as it can speak to a company’s bullish outlook, and it boosts the value of their holdings. Critics have noted that companies with large buyback programs can underperform the market. A recently published long-term study found companies that bought back stock ended up boosting the prices of other companies’ stock more than their own.

According to the institute’s report, which is based on corporate filings with the Securities and Exchange Commission, average CEO pay at the “low-wage 100” companies rose by 34.7% between 2019 and 2024, while the average median pay of global workers rose by 16.3%. Because the workforce at many of these corporations is global, the figures aren’t adjusted for inflation.

As a result, the pay ratio between CEOs and workers widened by 12.9% from 2019 to 2024, to 632. That means the CEO compensation packages—which averaged $17.2 million in 2024—were worth 632 times the $35,570 in wages of the average median global worker last year. A study earlier this year by Equilar of public companies with at least $1 billion in revenue reported a narrow pay ratio of 490 in 2024.

In 2023, the pay ratio of the “low-wage 100” had narrowed to 538, the report said.

The jump in the pay ratio this year is “shocking,” Anderson says.

Many of the institute’s “low-wage 100” companies are in retail, but the list also includes manufacturers, hospitality firms, and tech companies. Some of these companies may employ part-time workers, which can skew results, as the SEC requires their pay to be included in median-pay calculations, according to the report.

Ulta Beauty, for instance, reported a 46% drop in median worker pay to $11,078 in 2024 from 2019, as the percentage of part-time employees rose to 66% from 59%, the report said. In the same period, Ulta CEO David Kimbell’s compensation rose by 45% to $12.5 million, 1,130 times the median worker pay, according to the report.

Ulta didn’t respond to requests for comment.

The institute has issued reports on executive compensation and worker pay for 31 years, focusing on various issues, including the financial crisis, and on the pay gap at the “low-wage 100” more recently. Their research found these corporations spent a collective $644 billion to buy back stock from 2019 to 2024.

“Every dollar spent on buybacks represents a dollar not spent on investments vital to long-term value creation, investments that can range from strengthening innovation through better employee training to acquiring and upgrading technologies, equipment, and properties,” the report said.

Capital expenditures of the institute’s “low-wage 100” companies totaled $632.6 billion in the six years through 2024, slightly less than the amount spent on buybacks, the institute found.

But the institute’s capex figure excludes Amazon.com, which made the “low-wage 100” list with a relatively low CEO-worker pay ratio of 43. The institute describes Amazon’s capex figure as an outlier because it alone spent $317.4 billion to expand its warehouse and delivery networks, artificial intelligence, and web services from 2019 to 2024, according to the report. By contrast, the 99 remaining companies spent an average of $6.4 billion on capex during the six-year period, the report said.

An Amazon spokesperson said that the company increases hourly wages every year, and over the last six years has invested more than $12 billion in hourly pay. Amazon hasn’t repurchased stock since 2022.

Stock buybacks weren’t permitted by law until Congress passed legislation allowing them in 1982. Congressional efforts to reinstate a ban have failed. In 2023, Congress enacted a 1% excise tax on buybacks. A proposal to boost the tax to 4%—which was backed by then-President Joe Biden during his 2023 State of the Union address—hasn’t progressed. Anderson, who also co-edits the institute’s Inequality.org website, believes the proposal has “bipartisan potential” to become law as a revenue-raising mechanism. In 2020, now-President Donald Trump criticized companies for channeling capital saved in corporate tax breaks into buybacks instead of capex.

Not everyone agrees that stock buybacks are bad. “Increasing the tax on corporate buybacks is bad policy,” Burton Malkiel, the economist and author of A Random Walk Down Wall Street, wrote in an opinion piece for The Wall Street Journal after Biden’s speech. “Any revenue raised would come at the expense of making the capital allocation process less productive and introduce inefficiency into the capital markets.”

The institute advocates policy changes to limit CEO pay and stock buybacks, including increasing the buyback tax, taxing companies with extreme CEO-worker pay gaps, and restricting buybacks and CEO pay through federal contracts and subsidies.

On the latter policy issue, the Biden administration showed how this can be done through the Chips Act, Anderson says. The legislation gave preferential treatment to companies applying for grants if they agreed not to repurchase stock for five years, Anderson says.

According to the institute, various polls have shown that Americans are largely in favor of clamping down on excessive CEO pay. An April 2024 poll by Data for Progress, a progressive think tank, found 80% of likely U.S. voters—including both Republicans and Democrats—supported implementing a tax on corporations whose CEOs make at least 50 times more than their median employee.

The cities of San Francisco and Portland, Ore., have passed laws taxing companies with large CEO-worker pay gaps. Similar bills have been introduced in half a dozen state legislatures, Anderson says. “At a time when it’s not realistic to expect action on the federal level, [proponents of a CEO tax] can work on this at the municipal and the state level,” she says.

Write to Abby Schultz at abby.schultz@barrons.com