Executive pay is a touchy topic. Companies want the freedom to offer whatever they think is necessary for someone like a CEO. Investors want to know where their money is going. Workers expect to understand why some people get not just a lot more but amounts that are breathtaking in their largesse.
Pay ratios between that of the CEO and median pay for workers became mandatory under the Dodd-Frank legislation — a law and related regulations the GOP has targeted for destruction if possible, massive scaling back if not.
Corporations and their proxies so far haven’t embraced the mandatory pay ratio disclosures. Instead, they’ve attacked the measure and tried to undercut what insight the information can provide. Nell Minow, an old colleague of mine, expert in corporate governance, and vice chair of ValueEdge Advisors, called the rhetoric “corp-splaining” — companies trying to tell people outside of a corner office why they shouldn’t care — and pointed to a blog post from Pearl Meyer. The company, which advises on compensation (which often means justification for eyebrow-raising levels of pay for executives), dismissed the pay ratio, saying “this isn’t anything we didn’t already know.”
Instead, the firm focused on the terribly high costs it says companies are forced to pay to pull the information from multiple computer systems that don’t talk to one another.
Ah, yes, all that time and effort. (From a strict business view, if your systems don’t talk to one another, don’t complain about the expense of compiling data for a regulator, or possibly an executive or board director. Fix the systems.)
We do know that CEOs make a lot of money at publicly-held companies. Pay disclosure has been mandatory for many years. There are also multiple studies to show that corporate financial performance doesn’t correlate to CEO pay. Pushing more money at the CEO, as we’ve learned time and again, doesn’t mean the company will do better.
But the comparison within a company of CEO pay to that of the employee in the middle of the pack is informative. The metric gives you an idea of what it takes to support that top salary, which may not be doing anything for the company, the investors, workers, communities, or other potential stakeholders.
Sam Pizzigati, a co-editor of Inequality.org, wrote a piece in the Guardian that included a way of looking at the metric that makes perfect sense, only I’ve never heard it phrased this way. The ratio shows how many years it would take for the employee in the middle of the pack, the one getting the median paycheck at a company, to make as much money as the CEO does in one year.
At McDonald’s, for example, CEO Stephen Easterbrook’s compensation was $21,761,052 last year, up from $15,355,746 in 2016 and $7,909,296 in 2015.
According to the company’s proxy statement, the median employee was a part-time restaurant crew worker in Poland who made $7,017. The ratio was 3,101 to 1. In other words, it would take that employee 3,101 years to match Easterbrook’s 2017 compensation.
The qualifiers are significant and can distort company-to-company comparisons. That median McDonald’s employee is part-time in a country with a lower minimum wage (equivalent of $589 a month) than the U.S. Then again, Poland has public healthcare and free tuition at public universities.
Even keeping qualifiers in mind, the disparities are massive. And in the U.S., almost 52% of fast food workers are on public assistance. They can’t make enough money to live on. Many thousands of workers are at the poverty line while CEOs are wealthy. It’s effectively a subsidy from government to these corporations.
According to an AFL-CIO analysis of public filing data, last year the average S&P 500 CEO made 361 times more than the average U.S. worker.
Compare that to pay ratios in Europe, where a CEO-equivalent in the U.K. makes 94 times the compensation of the average employ, and that’s the high end. In Sweden, home to some large companies, the ratio is 40. These countries also have public accessibility to healthcare and post-secondary education.
Not that cutting the pay of an Easterbrook would free up enough money to significantly raise the incomes of tens of thousands of workers. But it’s the principle that consideration is channeled to the top and pulled away from everyone else that’s important. Many are considered dispensable and corporations want to keep the information out of sight.