Striking information

What PepsiCo’s annual report tells us about the Frito Lay strike

There have been a lot of stories written recently about the employee strike at the Topeka Frito Lay plant. None struck me more than an opinion piece written by one of the employees on strike

The author outlined a number of questionable workplace practices - including working in dense smoke and inhumane shift schedules - but none more shocking than this: 

When a co-worker collapsed and died, you had us move the body and put in another co-worker to keep the line going.

The company later denied the claim, stating: 

We wholly reject the allegation that an employee “collapsed and died” and the company “moved the body and put in another co-worker to keep the line going,” said Frito-Lay. “While it’s unclear what incident the associate may be referring to, we are aware of only two instances in the last five years in which an individual has experienced a medical emergency at the plant that unfortunately resulted in that individual passing away. In both cases, medical attention was initially provided at the plant and work ceased until the associates were safely on the way to the hospital.”

Reports on the strike pushed me to go through PepsiCo’s 2020 annual report and proxy statement - to get some insight on the financial health of Frito Lay’s parent company. Here’s some of what I found interesting, in light of the concerns raised by the company’s workers. 

  1. About 26 percent of PepsiCo total revenue comes from Frito Lay North America

  2. PepsiCo 2020 Revenue - $70,372,000,000

  3. PepsiCo 2020 profit - about $10.5 billion

  4. Notwithstanding some accounting adjustments, Frito Lay’s operating profit in 2020 was $5.3 billion - around half of PepsiCo’s total profit. 

  5. The company repurchased 3.2 million PepsiCo shares in the fourth quarter at an average price of $139.04 share - for a total of about $445 million. (more on this later)

  6. PepsiCo has paid consecutive quarterly dividends to shareholders since 1965. In February 2021 the dividend was increased 5 percent, to $4.30 per share.

  7. Average tax rates to states: 1.2 percent. Kansans who make between $30,000 and $60,000 pay a 5.25 percent tax rate. (You should really question why a multi-billion corporation pays a lower tax rate than you).

  8. PepsiCo CEO total compensation is $21.4 million, give or take a bonus here or there.

  9. Median employee pay is $46,546 - this includes a wide spectrum of employees from management to line workers 

  10. PepsiCo’s CEO to median employee pay ratio is 462 to 1. The national average ratio is 227:1

Wait, there’s more….

My original draft of this post was long and something about it bothered me, though I couldn’t quite put my finger on what that was. Maybe this situation is too overwhelming, too close to home, or reminds me of some of the things I witnessed or experienced that bothered me when I worked in a production facility. Nevertheless there are a few points I’ll condense here. 

  • Production work is exhausting, long, and generally thankless. For those who work 10 or 12 hour days, there is little time for anything except work - particularly if there’s an expectation to work overtime. And in the last several decades, this work has been somewhat chaotic - as companies have moved, consolidated, and slashed workforces to increase profits and satisfy shareholders. 

  • There is a big difference in the way white-collar and blue-collar employees approach their work life. The white-collar world affords some flexibility that doesn’t exist in the blue-collar world. Things like flex time, working from home, long lunches, or stepping out for a few errands, doctor appointments, or kids activities during the work day aren’t typical in blue-collar fields, particularly in production settings. I don’t think we generally do a good job of acknowledging the harshness of some of this work, or the personal sacrifices people make to do it. 

  • By and large, production work hasn’t adequately adapted to the modern realities of life. It’s not the 1950s - life is far busier, and both spouses typically work. Expectations have changed and working parents don’t want to just work - they want to work and actively participate in their children’s lives. That’s hard to do when you’re locked down on a production line for 10 to 12 hours each day. And perhaps a little irritating when those workers see that their office counterparts aren’t held to the same standards. 

  • Among Frito Lay’s first responses was to terminate striking employees’ health insurance - and I’m not sure there’s anything that better shows the need to separate health insurance from our employers. It is dangerous enough when a company holds our financial health in its hands - but demonstrably fatal to also give it outsized power over our physical health. 

  • Profit, in and of itself, isn’t bad. It drives innovation, interest, and investment. But it seems we’ve turned the entire concept of profit on its head - where profit (and by extension share price or dividends) has become the thing, instead of the byproduct of doing a thing well. This obsession with quarter-over-quarter growth has been toxic for the average worker and family. (It’s important, I think, to make a distinction between privately owned and publicly traded companies - with the former typically taking more modest profits and treating its employees with more care). 

  • Production employees generally know their livelihoods can be disrupted on a whim - not because of a recession or crisis, but because there’s a desire to increase short-term shareholder value. It’s hard to feel loyal to a company when there’s overwhelming evidence of where the company’s loyalties lie. This lies at the core of the current workforce issue, though most want to talk about the low hanging fruit of unemployment benefits and “kids these days.”

  • Employees aren’t sharing in the growth and wealth they create. Nationally, the CEO-to-employee pay ratio was 227:1 in 2020. At PepsiCo, it was 462:1. I mean think about this - if you worked for 50 years at PepsiCo’s median salary, you’d have made 10 percent of what the CEO makes in a year.

  • This business of stock repurchasing is insidious. So much so, it was functionally illegal before 1982. Basically, the profit created by Frito Lay’s employees is being used to purchase PepsiCo stock in an effort to drive the price up. This, in turn, benefits executives whose compensation packages include considerable amounts of company stock. In 2018, PepsiCo’s board of directors authorized a $15 billion, multi-year stock repurchase plan. The roughly $445 million of stock repurchased in the fourth quarter of 2020 could finance a 92-cent per hour raise for every PepsiCo U.S. employee. 

There’s growing evidence that the way we think and manage the economy is sorely outmoded, and not serving the overall interests of our state or our country. A company hoarding $15 billion of employee-generated profit to inflate its stock price might, in theory, allow a drop or two to trickle-down to us, but in practice it serves as a reverse funnel - one that siphons resources away from a broad base and condenses them among a small pool of people. There’s a moral argument about a system that takes money away from the working class to overfeed the wealthy, but there’s an equally strong economic argument against it. 

The practices revealed by the Frito Lay strike and in PepsiCo’s annual report show how enormous resources are removed from our economy - resources that workers could use to support their families, re-invest through local spending, and help fuel an increase in overall economic activity. It also shows what can happen when rank-and-file employees band together in an effort to resist a longstanding pattern of mistreatment - though the company is trying to brand striking workers as a bunch of malcontents who don’t know a good offer when they see one.

In fact, a recent study by the Rand Corporation found that from 1975 to 2018 roughly $2.5 trillion in would-be wealth had shifted upward to the top 10 percent of U.S. earners. Put another way, if the average income had grown at the same rate as the rest of the economy, and at the same rate as top earners, annual median income would be about $20,000 higher than current levels.

Let that sit a minute - unless you’re in the top 10 percent in this country, you are essentially earning the same amount you’d have made in the 1970s.

This siphoning of resources serves a handful of people well, but it damages the rest of us. When workers lack both time and resources because of the demands and the practices of their employers, all of us experience a less robust and vigorous economy than we’d experience with even a small degree of fairness and consideration for something other than the view from Wall Street. 

One more aside - I’ve been hearing a good deal of complaining lately that upward pressure on wages is driving up inflation. First, there’s much more to inflation and price pressures than wages. Right now we’re dealing with pent up demand and a year of stalled or slowed production and complications with international supply chains - all of which has a much bigger impact on inflation than wages. Also, why don’t we consider the effects of excess profit on inflation? I mean, if it’s a simple formula - cost of goods + profit = price - it seems to me that both sides of the equation effect the price we’ll pay for something. One can’t argue that an increase in production costs raises the price of something, while an equal or greater increase in profit doesn’t.