Despite apprehensions about CEO pay ratio compliance, the process for determining and disclosing the ratio went relatively smoothly for most companies in 2018. The ratio of the CEO’s annual pay to that of the median-paid employee varied by industry and company size, as expected, but overall, ratios were lower than predicted. And shareholder, proxy adviser, employee, and media response was muted.
How will 2019 differ? Most companies should be able to use the same median employee identified by the 2018 selection process, unless a company’s workforce or pay plans significantly changed. But companies should consider providing more context for the ratio, as requested by some investors. And the ratio may get more attention this year — particularly if a company has a year-over-year swing or its ratio is an industry outlier.
While there was little fallout from the first year of disclosure, recent developments show shareholders and other stakeholders are using the new data to target pay inequities and glean more information about workforce structure in the US and abroad:
Most companies did the heavy lifting in 2018 to establish a method for identifying the median employee. But there are still a few issues to tackle for 2019:
The median ratio for all companies was 64:1, and the median value for the median-paid employee was $63,900. (We’re not reporting averages because they are distorted by a handful o outliers.)
Ratios, employee pay vary by industry
Ratios closely correlate with company size, driven largely by CEO pay levels
Median company revenues for the 2,500 companies was approximately $1 billion. As shown in the table below, the median ratio was closely correlated with company size, with CEO pay having a much larger impact on the ratio than employee pay:
Most companies defined their own consistently applied compensation measure (CACM)
To identify the median-paid employee: