Black Friday Wal-Mart Protests Miss Mark On Pay Gap

From Mark Perry and Michael Saltsman.

"The "Black Friday" protests staged annually against Wal-Mart by the United Food & Commercial Workers Union are fast becoming a holiday tradition as loathed as an overcooked turkey or dry fruitcake. This year, organizers plan rallies and marches at more than 1,500 Wal-Mart stores around the country.

Activists will hand out literature to holiday shoppers warning that the Walton family is "hoarding" massive amounts of wealth.

On its Making Change at Wal-Mart (NYSE:WMT) website, the union says the company can "afford to pay higher wages," citing as proof the 2010 multimillion-dollar compensation of now-retired CEO Mike Duke.

While it's true that Duke was well paid for running one of the world's largest corporations, it's not true that his compensation — or the compensation of the company's new CEO Doug McMillon — have anything to do with the pay of the company's hourly employees.

The pay packages of top executives who head some of the world's largest companies have long been a point of contention for labor unions. The AFL-CIO maintains an Executive Paywatch website to trumpet a 331-to-1 gap between CEOs of 350 companies listed on the S&P 500 and the average U.S. worker.

Big Labor's CEO-to-worker pay ratio is problematic because it omits the compensation of the vast majority of executives. Our own comprehensive analysis of Bureau of Labor Statistics data shows that the actual pay gap is closer to five-to-one when all CEOs are considered.

Nevertheless, the talking point remains a potent one in the public opinion battle surrounding large, service-industry employers such as Wal-Mart. It's understandable: According to Morningstar, the company's six-member executive team earned combined compensation valued at $71 million in fiscal 2013.

That's a big number — but Wal-Mart is a big company. Its $470 billion in 2013 sales is equal to or greater than the entire GDP of developed countries like Taiwan and Austria.

Wal-Mart also has more than one million employees in the U.S. alone who depend on the managerial expertise of the company's top executives for their weekly paychecks.

A few bad decisions by the company's CEO and his executive team could mean the difference between a pay boost and a pay freeze — or, even worse, between more jobs and fewer jobs.

Despite a hypercompetitive retail market that intensifies all the time, Wal-Mart has impressively managed to stay at the top of the Fortune 500 annual ranking of US companies based on sales in every year since 2002.

If that market domination seems somehow automatic and independent of executive leadership, look at all of the large retailers who either faced closure or a steep drop in sales over the same time period — JCPenney (NYSE:JCP), K-Mart, Sears (NASDAQ:SHLD), and Borders, to name just a few.

What is overlooked or ignored by labor unions and anti-Wal-Mart organizations is that it takes highly compensated, superstar-level managerial talent to efficiently run a retail giant like Wal-Mart.

These activists then make an even bigger mistake by assuming Wal-Mart's top leaders are highly paid at the expense of lower wages for part-time hourly workers.

Consider: Wal-Mart employs roughly 600,000 part-time employees. If the company's executive team were replaced by lower-paid managers who forfeited 25% of a $71 million total compensation package, the extra take-home pay for part-timers would total just under $30 — per year, that is.

Assuming a 25-hour work week for 50 weeks a year, the pay cut at the top of the company yields less than 3 cents an hour in extra pay for Wal-Mart's part-time associates — and that's before taxes.

Even if we assume that Wal-Mart's executive team takes a 100% pay cut and distributes those earnings to employees — forfeiting salary, stock options, and everything else — the net benefit for the part-time workforce would be a pay bump of roughly 10 cents an hour before taxes.

Of course, there are other misguided means to boost the pay of Wal-Mart's hourly staff. For instance, this year's Black Friday protests will focus on creating a $15-an-hour "living wage."

But someone has to pay for that mandated raise, and Wal-Mart's low single-digit profit margin suggests the company itself is ill-equipped to do so.

That goes double for Wal-Mart's customer base, which relies on the "Save Money" promise in the company's slogan.

Instead, the store's employees would shoulder the cost of a "living wage" through reduced hours and fewer job opportunities — closing down the career pathway that allows today's cashiers to become tomorrow's store managers or corporate executives.

If you want to help Wal-Mart employees this year — or the employees of any other retailer, for that matter — the best thing you can do is go shopping. While labor union activists provide misleading talking points and empty solutions, you'll be providing the sales dollars that allow these companies to create more opportunities for the people who staff and manage the stores.

Unlike the Black Friday protests, that's a tradition that's actually worth continuing.

• Perry is a professor of economics at the University of Michigan-Flint and resident scholar at the American Enterprise Institute. • Saltsman is research director at the Employment Policies Institute."