A new survey found the CEO pay ratio that companies in the United States are expected to report this year will be 140:1, and 149:1 in the Midwest.
Equilar, an executive compensation and corporate governance data firm, asked companies of all sizes what they expect to disclose under new federal CEO pay ratio reporting rules.
The rule was stipulated in the 2010 Dodd Frank Act, was finalized by the Securities and Exchange Commission in 2015 and is to be implemented this year.
The reporting will not only give a new measure of CEO compensation but also a new view of the median employee’s pay. Workers will now know where their pay stands among peers in their industries as well as their CEOs.
The CEO pay ratio and the compensation of the median employee will be disclosed in public companies’ annual proxy statements, which also disclose the pay of the company CEO.
However, the number of exclusions, exceptions and different methodologies that companies can take in determining the median employee pay and some exceptions on components of compensation could make direct company comparisons difficult.
“It does really result in a limited ability to do an apples-to-apples comparison,” said Amy Seidel, a partner with the Minneapolis law firm Faegre Baker Daniels, which advises companies on SEC reporting requirements and executive compensation issues.
Two of the biggest exclusions will be in the way companies can account for new employees within the last year due to an acquisition and the ability to exclude a limited number of foreign employees. There are a number of other choices companies can make in determining the median employee pay as well.
Before the reporting rules changed, Equilar conducted a survey of public companies asking them for the CEO pay ratio they expect to report this year.
The median CEO pay ratio was 140:1, the number in a series where half the numbers are larger and half smaller, Equilar said the average pay ratio was 241:1 among the 356 survey responses. Not surprisingly, the largest companies with the most revenue and greatest number of employees tended to report higher CEO pay ratios.
Equilar also calculated ratios for different groups.
When compared by size, companies with revenue over $15 billion had a median CEO pay ratio of 263:1, while the companies with less than $1 billion in revenue had a median CEO pay ratio of 47:1. Similarly, companies with the largest numbers of employees had the highest median CEO pay ratio of 318:1.
By geography, companies in the Midwest — Minnesota, Illinois, Indiana, Iowa, Kansas, Michigan, Montana, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Wisconsin, West Virginia and Wyoming — had the second highest ratio between CEO and median employee pay at 149:1. The Southwest had the highest at 153:1, and the Pacific region, home of Silicon Valley, the lowest at 113:1.
The median employee compensation at the 356 companies was $60,000, with employees at the smaller companies having higher median compensation. Companies with fewer than 2,310 employees expect to report a median employee compensation of $85,580, and companies with more than 43,000 employees only expect to report a median employee compensation of $46,000.
An Equilar spokesman noted that as the size of a company grows, there are more entry-, lower- and mid-level positions. The likelihood of more part-time employees at larger companies would also result in a lower compensation for the median employee.
Patrick Kennedy • 612-673-7926