As Proxy Season Ends, Equilar Dives Into Pay-Ratio Data

With over 2,000 companies now having reported pay-ratio information for the 2018 proxy season (through May 10), consultant Equilar says it's time to take a deep dive into the data to see what trends are discernible. Of course, until we have information for several proxy seasons, we really won't have a very good handle on best practices or even which standards will ultimately take hold. In the meantime, however, Equilar's analysis of the first year of reporting is a welcome beginning.

First, Equilar reports that the median pay ratio was 70:1 for all Russell 3000 companies and 166:1 for all Equilar 500 companies (i.e., the largest companies by revenue trading on one of the major U.S. stock exchanges—NYSE, Nasdaq or NYSE American (formerly AMEX)—adjusted to approximate the industry sector mix of similar large-cap indices). There were several companies that reported "0," because the CEO had declined to accept any compensation, while the lowest actual ratio reported was 0.000005:1, reflecting CEO pay of $1 compared with median employee pay of almost $200,000. The highest reported ratio was 5,908:1, reflecting—predictably—new-hire grants and other comp paid to a new CEO, while the median employee was a part-time office staffer who made around $6,000. (Of course, the "median" means that half the employees made less than that.)

SideBar

I've been puzzling about why these median ratios don't even come close to those in general circulation outside of the SEC's pay-ratio mandate? For example, the AFL-CIO reported a CEO-to-worker pay ratio of 361:1 for the S&P 500 in 2017 and 347:1 for 2016. Similarly, according to a study from the Economic Policy Institute, for the largest U.S. public companies, CEO pay in 2014 was 303 times an average worker's pay, compared to just 20 times in 1965. (See this PubCo post.) Of course, it's hard to pin down the precise reasons for the differencesand there are probably severalbut one factor appears to be the use of different employee pools and methodologies. For example, to determine employee pay, the AFL-CIO uses the average annual pay of only U.S. production and nonsupervisory workers. Similarly, the ratio from the Economic Policy Institute took into account annual compensation (wages and benefits of a full-time, full-year worker) of a production/nonsupervisory worker (which the Institute says comprises a group covering more than 80% of payroll employment). By comparison, the SEC's pay-ratio rules require determination...