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Israeli drugmaker Teva Pharmaceutical Industries Ltd. reported a $19.3 million difference between its CEO’s 2017 compensation and the annual salary of its median worker. Teva’s 302-to-1 “pay ratio” is among the first to trickle in under now-effective SEC disclosure rules, required by the 2010 Dodd-Frank Act.
Companies required to comply with the pay ratio rules must use employee pay information to determine who their median worker is. They then divide their CEO’s compensation for that same year by the median worker’s compensation to calculate the final spread.
Deborah Lifshey, a managing director at compensation consulting firm Pearl Meyer said the SEC’s rules give companies considerable flexibility to determine what information is used to calculate the median employee. This, she added, means these calculations—and the results—aren’t consistent across all firms.
Lifshey also said ratios will vary among certain industries, with some lending themselves to bigger spreads and others to smaller ones.
“It’s impossible to compare ratios across companies because everybody’s doing their own thing,” Lifshey said. “It’s also impossible to compare results over time, because it’s the first year these have been filed.”
There is some concern among companies that their employees could be angered by the ratio, especially if they are among the 50 percent that makes less than the median employee, Lifshey said. However, investor and market reaction aren’t likely to be strong—at least this year, she said. “If you’re a practitioner, you know [the ratio] is meaningless.”