Americans will be hearing a lot more about the wealth gap, income inequality and related topics as the presidential election campaign ramps up. These issues tend to crop up every election cycle.
What’s different this time around is a relatively new corporate-disclosure rule, which can add context to the debate — and perhaps even give an indication of whether you would want to work for certain employers.
Publicly owned companies now must reveal how wide a gap exists between the compensation earned by average workers compared to their chief executive officers, in what is usually called the “CEO pay ratio.”
The rule, part of the Dodd-Frank Act reforms, has been phasing in over the past couple of years. For the first time, nearly all corporations now provide the ratio of what their CEOs earn each year compared to/with the pay for their median or midpoint employee.
Companies can provide more information, such as identifying the type of job performed by their median employee and where that person works, though without identifying him or her by name.
Corporations for years have been required to provide highly detailed compensation for their five or so top-earning executives. As a result of these disclosures, CEOs often are viewed as prime representatives of America’s rich class, though you could also throw professional athletes, Hollywood stars and other celebrities into that mix, as well as people who have benefited from large inheritances.
CEO pay can be highly complex, as larger corporations routinely provide not just salaries but also stock grants, option awards, bonuses, souped-up retirement benefits and other forms of compensation. At any rate, all that isn’t new. What is different now are the disclosures providing insight on what rank-and-file employees make.
Large pay gaps
These pay ratios in many cases are quite large — often surpassing 100-to-1 and sometimes topping 1,000-to-1, such as 1,076-to-1 at Walmart, where the company’s more than 2.3 million global workers earned $21,952 on average last year.
At McDonald’s, CEO Stephen Easterbrook’s compensation was 2,124 times that of the company’s median-paid employee — a part-time worker living in Hungary who earned $7,473. Pay ratios tend to be higher at companies with lower-skilled, part-time and seasonal workers, especially if they also happen to live in developing nations.
Shoe-maker Nike said its median employee earned $24,955 from working at an unidentified store in the U.S. CEO Mark Parker earned 379 times that amount.
First Solar, a maker of solar panels headquartered in Tempe, Arizona, calculated two ratios after identifying that its median employee was a full-time worker located in Malaysia. CEO Mark Widmar’s compensation of roughly $7 million was 530 times the $13,269 nominal pay earned by this worker. First Solar also applied a cost-of-living adjustment, giving the Malaysian worker modified U.S.-equivalent pay of $79,481 and reducing the gap to 88-to-1.
Conversely, many companies pay high median compensation, including roughly $171,000 at Exxon Mobil, $132,000 at Visa and $92,000 at Merck. The pay ratios at those corporations were 110-, 147- and 228-to-1, respectively.
Many companies provide the minimum required information, with little or no elaboration. Others take the opportunity to expound on broader employee-compensation practices.
At Amazon, CEO Jeff Bezos’ compensation of $1.68 million in 2018 was a modest 58 times that earned by the median Amazon employee globally, who earned $28,836 (the median pay for Amazon’s American workers was $35,096).
The online-retailing giant used this discussion to point out that its new $15 hourly U.S. minimum wage took effect Nov. 1 and thus didn’t apply for most of 2018, with the implication that the CEO pay ratio will narrow in coming years.
Amazon also noted that the company provides medical benefits, 401(k) retirement matching funds, parental leave, tuition reimbursement and other employee benefits.
Incidentally, Bezos’ highly simplified pay package includes an annual salary of just $81,840. The world’s richest man made it to that lofty status from his massive ownership of Amazon shares, rather than salary or other annual perks.
Filling in the blanks
Publicly owned companies disclose reams of information on a yearly basis, covering financial statements, business conditions, lawsuits, large shareholders, executive pay and much more. Yet corporations haven’t been required to tell much about their employees — who they are, where they work and what they make — and many companies have been quite reticent.
The new required disclosure of CEO to median-worker pay is an important step toward greater transparency in this area.
Anyone can look up pay-ratio numbers for public corporations, though it often takes some effort.
The information is disclosed in annual corporate proxy reports, most of which are released from February through May and can be viewed online using the EDGAR search service provided by the Securities and Exchange Commission at sec.gov or here. Look for “DEF14A,” which is short for “definitive proxy statement.”
Once you find a company’s proxy statement, the pay-ratio disclosure usually follows the Summary Compensation Table, a standardized chart listing pay for the top executives. But compared to/with the 20 or 30 pages some companies devote to explaining their CEO compensation, the section tied to worker pay usually garners only a few paragraphs.