CEO Pay, Worker's Salaries and CSR
In the United States of America, a deep wages chasm now exists between the bosses and the rest. According to a new report from the Institute of Policy Studies, pay ratios between CEOS and average American workers have risen sharply. In 2009 the chiefs of major corporations took home an average of 263 times the pay of America's average workers – a disparity which was bad enough – but in 2010 the gap grew to a staggering 325-to-1.
But it is not only the workers are missing out while the corporate bosses enjoy a bonanza. The public is losing out too. Astonishingly, one quarter of the hundred US corporations which were considered in the study paid their chief executives more than the entire amount that they paid in federal income taxes in 2010.
Although these figures are profoundly galling given the precarious state of the US economy, in one sense extreme efforts at corporate tax minimisation should come as no surprise because reducing tax obligations is in the interest of corporations that are legally bound to maximise returns to shareholders.
The IPS report also shows that furthering the corporate interest is not merely about restraining expenditure. So for example, 20 out of 25 of the corporations in question also spent more on lobbying lawmakers than they paid in taxes, while almost as many donated more to political campaigns than they paid in taxes.
One thing the IPS report does not deal with is the ‘social responsibility’ commitments of the corporations in question. Intuitively, it might be thought that a company which seeks to minimize its tax burden will be unlikely to be particularly generous when it comes to community spending. However, as some examples of corporations from the IPS study illustrate, tax minimisers may still be substantial spenders on CSR.
Verizon, for example, is featured by the IPS as having taken a $705 million tax refund in the period under study. However, Verizon also has a high profile CSR program, claiming for instance that ‘America’s kids, schools and teachers deserve every resource we can offer them. That’s why we’ve invested $33 million in education initiatives.’
Taking another case, General Electric asserts that in ‘2010, the entire GE family—including businesses, employees, retirees and GE Foundation—contributed more than $250 million to community and educational programs, including more than $115 million from GE Foundation’.* But according to the IPS, in the same year GE received $3.3 billion in tax refunds following what the New York Times described in March as an ‘aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore’.
Three observations can be made about companies that seek to minimise tax, while shelling out for CSR programs. First, despite initial appearances, there is no intellectual inconsistency between giving money to charity while avoiding paying tax, because minimising tax obligations and maximising corporate reputation are both in a company’s commercial interests. Business activity which is represented as ‘corporate social responsibility’, still takes place in pursuit of commercial advantage – as does all that money that goes in campaign donations and lobbying of government. Indeed whatever else may be said about the company, General Electric is quite open that the purpose of CSR always comes back to corporate self interest:
GE's approach to corporate citizenship and to business are driven by a common understanding of the role we can play in helping to solve the world's toughest problems. Our goals are to make money (strong, sustained economic performance), make it ethically (rigorous compliance with financial and legal rules), and make a difference (ethical actions, beyond formal requirements, to advance GE’s reputation and long-term health).
The second observation is that in the two cases mentioned, the ostensibly ‘generous’ amount of monies paid over in CSR is dwarfed by the size of the tax refund. Prima facie, the public realm would be better off financially, If GE and Verizon kept their CSR largesse to themselves and just paid their taxes without effort at minimisation.
Third, one of the reasons why business prefers CSR to paying tax is because it functions to extend and perpetuate corporate dominance in the political realm. CSR reifies the ‘business knows best’ ‘small state’ paradigm through the clear implication that voluntary measures by corporations are more effective (and virtuous) than state interventions. Ironically, even where regulation is in place, business will tend to represent compliance with the rules as ‘CSR’ (note how GE above describes obeying the law as acting ‘ethically’) rather than acting in compliance with the law.
* As an aside, it is also worth noting the sheer corporate arrogance in claiming voluntary charitable contributions from employees and retirees as some how being from GE - not to mention the bizarre characterisation of business units and individuals as all being part of one corporate 'family'.'
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