CEOs Make 200 Times More Than Workers
Earlier this month, the Securities and Exchange Commission approved a rule that will require companies, starting in 2017, to disclose a simple calculation: At what multiple is the chief executives’ compensation vs. the median-compensated worker.
It’s a concept many in Corporate America have loved to hate ever since it was first included in the Dodd-Frank financial reform law back in 2010. For one, they say, it will be an expensive and logistical headache — particularly for companies with large global workforces — that may have little payoff for shareholders.
But they’ve also surely concerned about rankings like the one Glassdoor released Tuesday. Using compensation data reported by employees, the employee reviews Web site offered a sneak preview — though an unofficial one with caveats — of how eye-popping these numbers might look once companies start to finally disclose them, as well as how they stack up with each other.
Glassdoor ranked as many companies in the Standard & Poor’s 500-stock index as it could by the ratio of CEO pay, as reported in its proxy, to the median salary survey reported to Glassdoor by employees. That analysis resulted in 26 companies where the CEO’s 2014 compensation was more than 500 times that of their median worker, at least as reported to Glassdoor.
The average ratio, meanwhile, was 204 times median employee pay. That’s significantly less than past average ratios calculated by the AFL-CIO or the Economic Policy Institute, where the ratios topped 300 times median worker pay and were calculated using worker pay data from the Bureau of Labor Statistics.
“Many people care about fairness,” said Andrew Chamberlain, Glassdoor’s chief economist. “Our view is transparency helps us get the facts straight so we can have a fair debate about CEO compensation.”
Discovery Communications’ David Zaslav topped the list with 2014 compensation of $156 million, which was 1,951 times the median reported worker pay at Discovery of $80,000. Zaslav’s pay was particularly high in 2014 with his signing of a new six-year contract that included big equity and option awards designed to encourage long-term ownership of the company and will vest over time. A Discovery spokeswoman declined to comment.
Retailers and fast-food restaurants are heavily represented near the top of the list, an unsurprising outcome given the high numbers of hourly paid employees in such industries. Rounding out the top three are Chipotle and CVS Health, where the CEOs made 1,522 and 1,192 times the median worker, respectively.
A Chipotle spokesman did not return a request for comment. CVS Health spokeswoman Carolyn Castel said in an e-mailed statement that the company “is committed to providing employees with comprehensive and competitive pay and benefits” and that its CEO pay “is in line with industry standards and closely reflects the company’s financial performance and success.”
Glassdoor’s list also reveals companies where the ratio is lowest. Such companies as Fossil, Google and Kinder Morgan, all of which have founder-CEOs who had basically no new compensation in 2015, had ratios of zero.
To create the list, Glassdoor started with companies in the S&P 500, eliminating companies that didn’t have recent proxy filings or for which it did not have at least 30 salary surveys completed in its database. These surveys ask users to share details about their salary, bonuses, profit sharing and other pay in exchange for other insider information on the company. At least 348 of the 441 companies that remained had more than 100 salary surveys, and 93 had more than 1,000.
While the ranking gives some directional sense of what the coming numbers will look like, it also comes with a number of caveats. Obviously, the ratios are based on salary surveys of a subset of each company’s workers, and may not represent a truly random sample.
Other factors could also drive the actual ratios up or down. People tend to underreport bonuses and other non-salary compensation because they don’t remember or don’t know their details, Chamberlain says, making the gaps in Glassdoor’s analysis potentially wider than they really are.
At the same time, Glassdoor’s report only considered U.S. full-time regular employees. That could mean the ratios they calculated are narrower than they would be if contractors or foreign workers were also considered. Companies pushed the SEC to allow them to exclude a percentage of overseas employees, which likely would have helped limit the gap for some multinationals.
Still, Chamberlain says that while they are clear they may not have a full distribution of job titles, its figures offer a reliable estimate, especially with these caveats in mind. “We feel pretty confident that this is a good estimate of median pay for workers,” he says. “It’s the best we can do.”
To get a sufficiently large sample size, Glassdoor also had to use reported pay numbers from employees over a six-year period, adjusting them for inflation to 2014 dollars. Walmart spokesperson Randy Hargrove said that could underrepresent the median pay of its employees, who received a pay bump earlier this year when the company made a billion-dollar investment to raise starting wages for employees to $9 an hour, and $10 an hour next year.
Hargrove also said that Glassdoor’s effort at consistency — it used 2014 compensation for nearly all CEOs, in order to compare similar year figures — meant its analysis did not use the company’s most recent, and lower, tally for CEO pay.
Walmart CEO Doug McMillon made $19.4 million in 2015, compared to $25.6 million in 2014. Both years also included special equity grants, Hargrove noted — a grant in 2014 when he was promoted to CEO and one in 2015 worth $14.5 million that will only be realized over three years if certain goals are met. Seventy-five percent of McMillon’s pay is tied to meeting financial goals, Hargrove said.
Given all those caveats, it’s likely the actual ratios, when companies are finally required to report them, will shift somewhat. The big question is how much employees will really care. Some compensation experts think the more controversial number for workers won’t be what their CEO makes—they already know that’s high — but what their median peer makes, something companies currently don’t have to share.
“Heaven forbid it might lead to wage negotiation,” said Glassdoor’s Chamberlain, noting people can already look on its site to get a sense of whether they’re underpaid or overpaid. “To a certain extent that cat’s already out of the bag.”
