Employees at the Target in Wauwatosa wait for customers to enter last year on Thanksgiving Day, Nov. 28. Target said its worker compensation programs “are structured to align the interests of our executive officers with the interests of our shareholders.” Credit: Kristyna Wentz-Graff

SHARE The Rev. Michael Crosby

By of the

A longtime shareholder activist in Milwaukee is prodding big retailers to do something about low wages with a new weapon — their own words.

The Rev. Michael Crosby, a Capuchin friar who has been involved in corporate-responsibility campaigns for 40 years, views the huge pay gap between top executives and ordinary workers as a moral issue. But he's trying to make an economic case that retailers actually stand to benefit if that gap is narrowed.

"Your motivation may be what your faith is telling you," he said, "but in order to get your argument across to the Street, you've got to argue economic terms."

To do that, he is helping lead an effort to get the pay issue on the annual meeting agendas of several major retailers, including Kohl's Corp., Target Corp. and Wal-Mart Stores Inc.

The proposed resolutions call for the companies to issue reports comparing the pay of top executives with the median wages of store employees.

In support of the contention that it is in retailers' economic interest to see lower-income people make more money, the resolutions point to the companies' own descriptions of risks to their business, contained in annual filings with the Securities and Exchange Commission.

Kohl's, for example, says declines in consumer spending levels could reduce demand for its merchandise. Among things that may affect spending habits, the Menomonee Falls-based department store operator says, are Americans' salaries, wages and disposable income.

Walmart cites decreases in consumer disposable income and changes in consumer spending as risks.

Cause for concern

These are far from the companies' only stated worries. The risk-factors sections of corporations' securities filings often take a kitchen-sink approach in describing the financial perils that could possibly beset them.

Walmart's section, for example, runs more than 5,000 words and cites more than 50 potential stumbling blocks — from inflation and deflation to data breaches and terrorist attacks.

Companies do tend to cover themselves by listing every possible circumstance that could hinder their performance, acknowledged Brendan Duke, policy analyst with the Center for American Progress, a liberal think tank that cataloged risks cited by the 100 largest publicly traded retail companies. Crosby's effort relies on the organization's research.

But Duke said the number of major retailers citing consumer income as a risk factor has risen dramatically since the pre-recession year of 2006.

"So they actively thought of this," he said. "It's not boilerplate. Somebody realized that this is actually a new problem, not just a theoretical issue. It's kind of like, I'm sure before September 11th there weren't many citing terrorism as a risk factor."

There does seem to be cause for concern. Sears Holdings Corp. and J.C. Penney Co. Inc., both of which target middle-income shoppers, have struggled. So to a lesser degree has Kohl's. Even mighty Walmart recently went six straight quarters without an increase in same-store sales, a key retailing metric.

Census data show that from 2007 through 2013, the annual income of the median American household fell 8% when adjusted for inflation. The median is the midpoint — half the households make more, half make less.

Chances that the resolutions Crosby and his colleagues are proposing will be adopted are close to zero. Companies may even try to prevent them from being put before shareholders at all.

Surprising support

But support for the notions of narrowing income inequality generally, and lifting pay in retail specifically, is popping up in surprising places.

Earlier this year, according to Bloomberg News, a Walmart spokesman said the giant retailer is considering support for increasing the minimum wage, and the incoming chairman of the National Retail Federation said he will encourage members of the group to boost workers' pay.

And in August, an analysis concluding that income inequality in the U.S. is dampening economic growth was issued not by a left-wing advocacy group, but by Standard & Poor's, one of the country's best-known financial services firms. Lifting more Americans out of poverty and bolstering middle-class purchasing power are essential to more-sustainable growth, the report said.

"We see a narrowing of the current income gap as beneficial to the economy," it said.

The gaps in retail are wide. CEOs of large retailing firms receive the multimillion-dollar pay packages characteristic of big corporations in other fields. Average wages in the industry, meanwhile, are among the lowest of any major economic sector.

Kohl's CEO Kevin Mansell's 2013 compensation totaled about $8 million. Gregg Steinhafel, then-CEO of Target, got more than $12 million.

Walmart recently changed CEOs, affecting the pay of both the incoming and outgoing executives. But for the year that ended in January 2013, then-CEO Michael Duke received about $20 million.

Kohl's declined to talk about Crosby's proposed resolution.

Target said its compensation programs "are structured to align the interests of our executive officers with the interests of our shareholders. In response to shareholder feedback last year, we embarked on a comprehensive overhaul of our executive compensation program to even better align compensation with company performance." The company said it will "continue to listen to, and consider, proposals from our shareholders."

Walmart believes that "it's not where you start, it's about how much opportunity you have and how far you can go," spokesman Randy Hargrove said. The company promotes more than 160,000 U.S. employees a year, he said, and 75% of its store management team started as hourly employees.

Economic backlash

Greater rewards for better ideas, for greater effort, and even for just luck are essential to a free-market system. Much of the inequality debate is over how great those rewards should be, and how the current levels of income inequality — which have climbed steadily since the 1970s and now stand on a par with the late 1920s — might affect the overall economy.

Another consideration: Higher wages for retail workers could mean higher prices. Companies such as Trader Joe's and Costco have managed to offer both premium pay and relatively low prices, but whether that could work across the broad retail sector is unknown.

In an analysis last year, economists with the Federal Reserve Bank of Chicago said raising the minimum wage would increase consumer prices and would boost overall spending only for a year or so.

Steven Fazzari, an economics professor at Washington University in St. Louis, co-authored an article earlier this year that concluded that income inequality has sharply constrained spending by the great majority of Americans and is holding back the economy. But in an email last week, he said he sees a problem with the approach Crosby and his colleagues are undertaking.

"Raising wages at one chain of stores will do next to nothing for that chain's sales," Fazzari said. "I think that retailers would benefit from faster wage growth across the income distribution (rather than stagnation for just about everyone except those at the top). The challenge is finding a way to make this happen."

Crosby said prompting further discussion on income inequality and its effects is a start.

"That would be good enough for me," he said, "if we could have a conversation that would lead to some actions that would change the dynamic."