The Huge Pay Gaps at Low-Wage Federal Contractors

A recent poll shows that 87 percent of Americans view the growing gap between CEO and worker pay as a problem for the country. And yet ordinary U.S. taxpayers are fueling corporations with huge pay gaps through the hundreds of billions of dollars in federal contracts and subsidies that flow every year to for-profit businesses.

Earlier this year, the Institute for Policy Studies analyzed pay trends at the 300 publicly held U.S. corporations that had the lowest median wages in 2020. In this policy brief, we zero in on the 74 companies in this sample that received more than $1 million in federal contracts from FY2019 to May 1, 2022. Together, they held $37.2 billion in contracts during this period.

Key findings:

• • The gap between CEO and median pay at these 74 low-wage federal contractors increased from an average of 483 to 1 in 2020 to 599 to 1 in 2021. Only four of the firms had ratios of less than 100 to 1.
  • These contractors’ average CEOs compensation rose from $7.7 million in 2020 to $13.0 million last year.
  • Median pay among these firms averaged $26,838 in 2021, up from $23,107 in 2020.
  • Seventeen of the firms repurchased their own shares in 2021, with expenditures totaling $4.6 billion. Stock buybacks siphon artificially inflates the value of a company’s shares — and the value of their CEO’s stock-based pay.
  • See details on all 74 firms in pdf report. 

The corporations in our low-wage sample with the largest federal contracts come from diverse service, technology, and manufacturing sectors.

Maximus

Maximus, the top contractor in our sample, has held $12.3 billion in federal contracts over recent years. The company’s contracts include deals to service federal student loans and operate Obamacare and Medicare call centers. In fiscal year 2021, federal contracts made up 45 percent of Maximus total revenue.

Half of the 49,800 Maximus employees earned less than $38,059 in 2021. Before President Biden’s executive order raising the minimum wage for federal contract employees to $15, many of the company’s call center workers earned as little as $10.95 per hour.

By contrast, Maximus CEO Bruce Caswell’s 2021 compensation totaled $7.9 million, 208 times the firm’s median pay and 36 times the salary of the top officials at the government agencies responsible for the company’s largest contracts.

Maximus offers a prime example of how extreme pay gaps undermine enterprise effectiveness. A March 2022 report by the Communications Workers of America and the Student Borrower Protection Center revealed extensive Maximus mismanagement. The study found evidence of sloppy and potentially unlawful student loan servicing, unfair debt collection practices, and unlawful wage garnishments and public benefit seizures, sometimes even involving Social Security payments.

In March and again in May 2022, workers at Maximus call centers in Mississippi and Louisiana, a largely Black workforce, staged walkouts demanding higher pay, paid sick leave, and the opportunity to unionize without retaliation. In June, over 40 workers from Maximus call centers in Mississippi, Louisiana, Virginia, and Texas marched to the company’s brand new, state-of-the-art headquarters in Tysons, Virginia, to deliver a petition with close to 12,000 signatures calling for livable wages, affordable health care, and the right to organize a union free from intimidation.

Amazon

Amazon, the second-largest contractor in our sample, has reported $10.3 billion in recent federal contracts, most of it to provide web services for the National Security Agency. But the full extent of Amazon’s taxpayer-funded contracts remains unknown. The company reportedly also received a lucrative share of a multi-billion-dollar CIA contract for cloud services. The details and exact value of this contract continue to be classified.

Amazon’s new CEO raked in compensation worth $212.7 million last year, 6,474 times the company’s median pay and 961 times the salary for the U.S. secretary of defense.

The company spent millions of dollars in 2021 fighting union campaigns at several of its warehouses, including one in New York’s Staten Island where workers voted in a union for the first time at a U.S. Amazon worksite. The retail goliath is fighting to overturn this union victory in court and has continued to use intimidation tactics to undermine union drives at other facilities.

TE Connectivity

TE Connectivity has landed $3.3 billion in recent federal contracts for manufacturing electronic sensors and connectors, partly under direct contract with the Defense Department and partly as a subcontractor to major military contractors like Boeing, Lockheed Martin, and Northrop Grumman.

TE Connectivity CEO Terrence Curtin enjoyed a 39 percent 2021 pay increase to $14.7 million. The company’s median worker pay last year rose only 0.2 percent to $24,975, far below the U.S. inflation rate. Under Curtin’s leadership, TE Connectivity has expanded its global workforce while cutting U.S. jobs. In 2018, the firm’s 12,056 U.S. employees made up 16.8 percent of the company’s workforce. By 2021, TE’s U.S. worker total had shrunk to 9,169, just 12.5 percent of the overall workforce. The company operates 16 manufacturing facilities in China. They do not disclose where the median TE worker labors, but that person likely works outside the United States.

TE Connectivity has a notorious history of executive excess. The firm was originally part of Tyco International, whose CEO, Dennis Kozlowski, became infamous for the golden shower curtain and other extravagances he purchased with money stolen from the company. He was convicted in 2005 and sent to prison. TE Connectivity is also famous for tax-dodging, having moved its headquarters first to Bermuda and then to Switzerland to avoid paying its fair share of U.S. taxes.

Paychecks for contractor CEOs dwarf the paychecks of government executives

CEO pay apologists regularly argue that corporate leaders deserve their massive compensation packages because they bear enormous responsibilities and must take extraordinary risks. This argument quickly falls apart when we compare CEOs at major contractors with the government officials ultimately responsible for their contracts. The U.S. secretary of defense, for instance, manages the country’s largest workforce — more than 2 million employees — and makes life-and-death decisions on a daily basis. And yet this defense secretary and other Biden cabinet members make just $221,400 per year, less than three times as much as the $76,668 average federal employee annual pay.

Policy recommendation: CEO pay ratio incentives for federal contractors

The Biden administration could use executive action to give corporations with narrow pay ratios preferential treatment in government contracting.

Long-established federal programs already offer a leg up in contracting to certain businesses, such as small firms owned by women, disabled veterans, or minorities. Some of these are set-aside programs while in other instances, contracting officers are required to apply up to a 10 percent price evaluation preference to offers from certain businesses in bidding competitions.

These preference programs use the power of the public purse to level the playing field and expand opportunities for the disadvantaged. Using public procurement to address extreme disparities within large corporations would be a step towards the same general objective.

By encouraging big companies to narrow their pay gaps, the administration would also help ensure that taxpayers get the biggest bang for the buck for federal contract dollars. Studies have shown that companies with narrow gaps tend to perform better. A Harvard Business School study, for instance, found that companies with overpaid CEOs and underpaid workers saw significantly higher levels of employee dissatisfaction and turnover, as well as lower sales. Another recent analysis found that the best-performing companies during the 2006-2020 period had the lowest-paid CEOs. Additional academic research studies reinforcing these findings are available on the CEO pay ratio resource page of Inequality.org, an Institute for Policy Studies web site.

The Patriotic Corporations Act could serve as a model for executive action. This bill would grant preferential treatment in contracting to firms with pay ratios of 100 to 1 or less, among other pro-worker and pro-environment benchmarks, including a requirement to remain neutral in union organizing campaigns. The Congressional Progressive Caucus has called on Biden to introduce such conditions on contractors through executive action. To curb excessive CEO pay, the administration could also impose stock buyback restrictions on federal contractors, building on the recent decision to give firms that do not engage in stock buybacks a leg up in the awarding of CHIPS funds for expanding semiconductor manufacturing.

Pdf version includes a table listing the 74 low-wage corporate contractors, their CEO pay, pay ratio, federal contracts, and stock buybacks.