The Godfather of CEO Megapay: McKinsey Consultant Arch Patton Didn’t Invent Wealth Inequality
When fast-food workers walked off the job in several U.S. cities a few weeks ago, it was like a blast from the past. For one day, at least, American labor was flexing organizing muscles that have largely atrophied over the past few decades. And the prognosis has only been getting worse: Michigan Governor Rick Snyder signed legislation in December limiting the power of unions in a state that once served as a symbol of union might, starting the countdown clock to the end of unions everywhere. The fight over Detroit’s financial future is a further sign of things to come: with municipal and state finances still a mess nationwide, even the liberally inclined but nonunion man on the street has begun to turn on his organized labor neighbors as the fight over which matters more—government employee pensions or basic city services—moves from the theoretical into the very real.
But let’s get back to the fast-food furor. The workers have a simple demand: a minimum wage of $15 an hour, roughly equivalent to $30,000 a year. According to the National Employment Law Project, the average front-line fast-food worker (which includes most non-management positions, including cashiers, cooks and deliverymen) makes barely more than half that amount, or $8.94 an hour. That’s less than $20,000 a year.
Employers counter that wages of $15 an hour are too high for their business model, while also seeking the moral high ground by claiming that these jobs play a crucial role for millions of Americans as an “entry point” into the work force. By comparison, McDonald’s former CEO, Jim Skinner, received $27.7 million in compensation in 2012. And David Novak, CEO of Yum Brands (the parent of KFC, Taco Bell and Pizza Hut), took home $11.3 million for his role in bringing Dorito taco shells to a salivating public.
While workers’ complaints haven’t focused on the CEO-worker pay gap, they might as well have, given that CEO pay continues to skyrocket even as corporate America has seen the systematic dismantling of the collective bargaining capability of its lower rungs. According to the A.F.L.-C.I.O., the CEO-to-worker pay ratio stood at an unprecedented 354:1 in 2012, versus 281:1 in 2002 and 201:1 in 1992. Since 1982, the average income of the top 1 percent of earners in the United States has grown 125 percent, while that of the 99 percent is up just 10 percent.
When, exactly, did things start to get so out of hand? A question like that usually serves as a rhetorical device for the answer, “It was a gradual change with no precise beginning.” Not this time. The long death of American organized labor began nearly a century ago, when the 1935 Wagner Act mandated collective bargaining with unions because companies were already figuring out how to screw the little guy. At that time when managers sought advice about how to deal with the rising power of unions, they turned to outside advisers such as McKinsey & Company, the secretive strategy-consulting firm that’s been having an outsize influence on corporate America for as long as “corporate America” has existed. McKinsey was never so foolish as to get labeled anti-union. But to its clients (corporate executives), it was clear which side of that growing struggle the consultants were on. And they remain there to this day.
Anyone who has worked in the corporate milieu knows that the arrival of McKinsey on the scene tends to not be a sign of good news for the rank and file. What is less known is McKinsey’s role in the creation of the CEO-to-worker gap itself. In 1951, General Motors hired McKinsey consultant Arch Patton to conduct a multi-industry study of executive compensation. The results appeared in Harvard Business Review, with the specific finding that from 1939 to 1950, the pay of hourly employees had more than doubled, while that of “policy level” management had risen only 35 percent. If you adjusted that for inflation, top management’s spendable income had actually dropped 59 percent during the period, whereas hourly employees had improved their purchasing power.