CEO pay ratio

Corporate governance researcher Equilar has found a median chief executive officer (CEO) pay ratio of 140:1 following an anonymous survey of 356 US public companies. Equilar asked the companies how they plan to report on this in their 2018 proxy statements.

In 2015, the Securities and Exchange Commission (SEC) passed a ruling that required public companies to report the ratio of compensation for their CEO in comparison to that of a median employee. This was to enact a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed into law in 2010. The SEC issued interpretive guidance in September 2017 and this year will be the first that the disclosure will be required.

Equilar’s research found that the median employee pay for all companies in the survey was $60,000. The survey also revealed that the median CEO pay ratio was larger in direct correlation to company revenue, totalling 47:1 for companies below $1 billion in revenue and 263:1 for companies above $15 billion in revenue.

Equilar US pay survey
Disclosure of median pay ratios begins this year in the US following concerns about high CEO rewards

Similarly, Equilar found that companies with the greatest number of employees had the largest ratio (318:1) and the smallest median employee compensation ($46,000). The smallest companies, with fewer than 2,310 employees, had the lowest ratio (45:1) and highest median pay ($85,580). Equilar split companies by employee size into five equal quintiles for this particular analysis.

While the median CEO pay ratio across all 356 submitting companies was 140:1 at the 25th percentile, the ratio was 72:1, and was 246:1 at the 75th percentile. The average was 241:1.

Ratios by industry sector varied much more widely Equilar found. “Consumer discretionary” companies, which include retail and hospitality, had the highest ratio with a median 350:1. Meanwhile, energy companies had the lowest ratio at 72:1. Median employee pay at the 48 consumer discretionary companies that responded to the survey was $21,840 vs. $107,887 for the 30 energy companies that responded.

Equilar said that about half of companies (46.4%) used a component of employee cash compensation to determine
the median employee, and about one in five used either W-2 income – which is the income reported by US employers to their staff and to the Internal Revenue Service – (21.4%) or total rewards, including total direct compensation, i.e. cash, stock and options awards (19.7%).  One in eight companies that responded to the survey used “other” methodologies. Of the 356 companies that submitted, 168 provided optional commentary on methodological factors.

There has been concern about the rising levels of CEO pay in the US and the gap between those at the top of companies and their employees. There has been a similar debate in the UK and the government is due to introduce pay ratio requirements later this year. Manifest has recently released extensive data on its UK pay ratio research.

Last Updated: 2 February 2018
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