B Corps Doing Business Better: Narrowing the Income Gap By Reducing Pay Ratios and Uplifting Workers

March 3, 2021

By Capping CEO Pay and Advocating for Lowest-Wage Employees, These Companies Seek a More Equitable Economy That Works for All

In recent decades, the income gap between the wealthiest Americans and the rest of the country has widened — and the disruption of the COVID-19 pandemic pushed things even further. Those with the most continued to gain while those with the least were most likely to feel the negative effects. This so-called K-shaped recovery indicates the disparity between the wealthy elite and people on the downside.

These inequities showed up in various ways during the pandemic. Higher-income workers are more likely to be able to work remotely, practice social distancing, and avoid health risks. But many essential or front-line workers who continue to work on-site also are among the lowest paid: grocery stores, cleaning staff, caregivers for children or the elderly, law enforcement, and teachers. In addition, many industries most affected by the pandemic — hospitality, restaurants, manufacturing — have lower-paid workers who faced layoffs or at least temporary unemployment.

The wage disparity is most apparent when examining CEO salaries, which have climbed to new heights in the last decade. Meanwhile those at the bottom of the pay scale — the federal minimum wage of $7.25 per hour — have not seen an increase during that time, although some elected officials are pushing for an increase to $15. A 2019 report from the Economic Policy Institute found that from 1978 to 2018, CEO compensation grew by 1,007.5%, while wages for the average worker grew by 11.9%. A federal law now requires publicly held U.S. corporations to report the pay ratio between their CEO and their median worker, but with variances in the reporting its meaning remains murky.

The current shareholder primacy structure rewards those at the top while making it more challenging for other workers to earn a living wage, especially in urban areas or high-tech regions with higher costs of housing and other life necessities.

The average pay ratio for highest vs. lowest-paid employees at B Corps is 7:1 (Versus the average 144:1)

However, one community of businesses is working to reverse this trend by focusing on uplifting all workers as part of stakeholder-minded practices and narrowing the pay gap. Certified B Corporations are evaluated on the pay ratio between their highest- and lowest-paid workers as part of the B Impact Assessment used for certification. Some B Corps have taken that a few steps further by advocating for changes in policy and practice so that all workers can earn at least a living wage and feel a stronger workplace connection.

A Challenge for the Fashion Industry — and Beyond

Nisolo is a Nashville-based B Corp with operations in Peru, Mexico, and Kenya that designs, manufactures, and distributes handmade leather shoes, accessories and jewelry. To uplift lowest-paid workers throughout the global fashion industry and draw more attention to income disparity, Nisolo in November 2019 published the lowest wages in its supply chain and asked other companies to do the same by launching the Lowest Wage Challenge with ABLE, an industry competitor.

Matt Stockamp, Sustainability Lead at Nisolo, says consumers responded to the Lowest Wage Challenge (LWC) in a big way: “Thousands of nominations were submitted, calling on 566 different brands to publish their lowest wages, and dozens of brands — large and small — expressed interest in participating.”

The Lowest Wage Challenge

But COVID-19 struck as they prepared to announce participating brands and scale the challenge, he says, disrupting the economy and leaving fashion brands and supply chains scrambling.

“With stay-at-home orders and the closing of retail stores around the world, brands suspended and canceled over $40 billion worth of purchase orders,” he says. This led to layoffs of millions of workers, including many women with young children and no safety net or other income options.

Stockamp says the pandemic spotlighted the fragility of the fashion system and forced Nisolo and other fashion brands to reconsider their production practices, while consumers were re-examining their consumption and choices. “We’re seeing even greater interest in the LWC as a result of more consumers becoming aware of the exploitation happening in our industry,” he says.

According to estimates, less than 2% of the 75 million people working in the fashion industry earn a living wage, Stockamp says, and 75% of garment workers are women between the ages of 18 and 24. But creating meaningful change is possible, he says: Studies show that a product would need to cost only 1%-5% more to provide a living wage to the people who made it.

He hopes other businesses — in the fashion industry and beyond — will follow Nisolo’s lead in being transparent about worker wages and supporting them in times of crisis.

“Like most fashion brands, COVID-19 impacted our business in a significant way. We closed our factory for two months, and dealt with significant layoffs in our supply chain,” he says. Nisolo was able to pay purchase orders with suppliers as well as the legally required severance to workers, and created a relief fund for producers who are without work.

“We’ve been able to bring back 39 people into our factory, and a social worker we employ on the ground is helping dozens of previously employed workers find work opportunities,” he says.

Stakeholder Capitalism: The Systemic Change Our Economy Needs

A new impact economy is being built, one where businesses prioritize and consider their impact on all the stakeholders they impact — including communities, workers, customers, and the environment. Download this free report to learn how the stakeholder model as practiced by B Corps is gaining global traction and validation.

Team members gather for a photo (pre-COVID-19 pandemic) outside Dr. Bronner’s facility in California.

‘A For-Profit with the DNA of a Nonprofit’

In a country where the median CEO-to-worker pay ratio exceeds 300 to 1, Dr. Bronner’s caps the pay of its highest-paid executives at five times that of its lowest-paid, fully vested employees, who make approximately $28 per hour. More than half of Dr. Bronner’s employees are women, and nearly 60% are People of Color.

Brothers David and Michael Bronner now lead the California-based B Corp, best known for its pure castile soap and advocacy for a strong supply chain and regenerative practices. Through its pay cap and related practices, Dr. Bronner’s aims to elevate livelihoods where it can — at its southern California factory and for its suppliers at fair trade projects in Sri Lanka, Samoa, Ghana, and India.

“The salary cap is part of what anchors our mission,” says Ryan Fletcher, Director of Public Affairs & Media Relations. “We believe in social justice. We think of the company as a for-profit with the DNA of a nonprofit. In part, the money we save on executive salaries allows us to do right by our employees and suppliers, and also allows us to dedicate over one-third of profits annually — all profits not needed for business development — to social and environmental causes.”

Thanks to its focus on employees’ quality of life, Dr. Bronner’s has a low turnover rate. “People start at Dr. Bronner’s and largely don’t want to leave,” Fletcher says. “Our workforce is very dedicated to their jobs, employees feel a kinship with one another and the Bronner family, and are proud of where they work and what they do for a living.”

The salary cap and general pay equity policy creates a workplace culture where living well is the norm for all rather than just those at the top, Fletcher says, and reflects the B Corp’s pursuit of social justice and equality.

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