We use cookies to collect information about how our website is used and to improve the visitor experience. You can change your browser’s cookie settings at any time. Please review our privacy policy for more information. OK
Companies are shying away from a pay ratio option that could lessen the blow of a big number. Just 10.3% of companies have opted to include an alternative pay ratio in their proxy statements this year.
Companies that include the alternate information are likely not targeting investors with the additional disclosure, especially since proxy advisors and large investors have said they don’t plan to use the disclosures for proxy voting this year. They are more likely coming into play as additional context for communications with other stakeholders, such as employees or the media.
Relatively few companies are using cost of living adjustments (COLAs) or statistical sampling to identify their median employee, according to research by Main Data Group into ratios filed as of April 10. Only 1% have disclosed ratios using COLAs, while only 3% used statistical sampling to identify their median employee.
The SEC assured companies late last year that they were permitted to use “reasonable estimates” in addition to these methodologies, which could ease the cost or effort to calculate their median employee, especially if they had large workforces spread across many countries. However, according to Deb Lifshey, managing director in the New York office of Pearl Meyer, in many cases the adjustments are usually more trouble than they’re worth.
For instance, many companies that could have benefited from statistical sampling had already begun the work of trawling their HR databases around the world when the SEC made its announcement last year. “People kind of took that to mean, ‘Well, why would I do sampling if I don’t have to be perfect in the information to get to the median. Why don’t I use that imperfect, yet reasonable, effort to collect information?’” Lifshey says.
Similarly, Lifshey says, most companies aren’t bothering with the COLA because, as with the alternative pay ratio, they still have to disclose the standard ratio without the adjustment.
“Whatever good you might get from running the COLA is taken away when you show a non-COLA number,” adds Lifshey.