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As companies continue to disclose the ratio of their median worker’s pay to their CEO’s pay, experts are noting that the added flexibility the SEC has allowed companies to employ in their calculations is making the ratios even more unique to each company.
While compensation experts have said all along that the pay ratios would be difficult to compare across industries or business structures, the stark differences so far between companies in the same industries have prompted investors and other groups to raise their eyebrows about median pay calculations and the terse explanations companies have provided along with their pay ratios.
Based on discussions with compensation attorneys and other observers, some broad themes are emerging.
A Main Data Group report on the first 500 pay ratios filed shows that base pay is by far the most common element in companies’ consistently applied compensation measure (CACM). While 90% of the disclosures reported using base pay in the calculation, 55% also included bonus or incentive pay, while 21% also included overtime. Some 18% included equity grants.
Ratios are lower than expected, while median wages are higher. According to Deb Lifshey, a managing director at Pearl Meyer, median ratios of companies that have reported so far are hovering at around 75:1, lower than the anticipated range of 100:1 to 120:1. One reason for this, Lifshey says, is that median wages are higher than expected at many companies.
“The purpose of all this … was to sort of guilt and shame companies for not paying their rank-and-file employees very much and paying CEOs a lot,” Lifshey says.
“But what we are seeing, at least in the proxies that have been filed to date, is that the average median compensation reported is about $72,000, which is higher than we thought.”