American workers, for the first time, are discovering how much employees earn at the biggest U.S. companies and how that pay compares with the chief executive’s.
At Humana Inc., the median employee made $57,385 while the CEO made 344 times that much, or $19.8 million, according to the health insurer’s proxy statement. Whirlpool Corp.says its median worker is a full-time staffer in Brazil earning $19,906 a year, while the CEO made an annualized $7.08 million, or 356 times as much. At medical-device maker Intuitive Surgical Inc., where the median employee was paid just over $157,000, the CEO got 32 times that, or $5.1 million.
Those three are among more than 50 major companies to reveal the gap between their median worker’s pay and the CEO’s annual compensation. For the first time, this year U.S. publicly traded firms are required to divulge their median employee pay in addition to CEO pay, and the ratio between the two.
The employee-pay disclosure was mandated by the 2010 Dodd-Frank Act in the wake of the financial crisis, with the aim of helping shareholders better understand and challenge executive-compensation practices at major U.S. companies. After a series of corporate scandals in the early 2000s and again during the financial crisis, investors have scrutinized CEOs’ rising pay and pressed boards to better align it with performance.
Advocates say it is high time corporations divulged such metrics about the makeup of their workforces and compensation.
“Most companies would say their employees are their biggest assets— so why are investors left in the dark about such basic factors, like what they pay employees?” says Brandon Rees, deputy director of the AFL-CIO’s investment office. He says the CEO-to-median ratio helps investors evaluate whether companies are creating good-paying jobs.
Critics call the pay ratio a blunt instrument that offers little meaningful insight, in part because of U.S. companies’ wide range of operational structures. Outsourcing low-wage work, for instance, can lift the employee median pay and make a company’s ratio lower. On the other hand, offshoring workers to operations in low-wage countries can drive the pay figure for the median employee lower and result in a ratio that is significantly higher.
In addition, the government disclosure rule gives companies wide leeway in identifying median workers, making direct comparisons more difficult.
Some compensation experts say the numbers simply reflect a globally competitive market for talent at all levels. “I don’t think they overpay their CEOs and I don’t think they underpay their median employees,” says Ira Kay, a compensation consultant who has been helping companies with disclosing the numbers.
Initial disclosures are yielding surprises. Some smaller banks report paying their workers more than bigger ones, while firms with vastly different workforces and business models can wind up with nearly identical CEO-to-worker pay ratios.
Employees also can see how their pay stacks up against their industry peers’.
To read more of Theo Francis and Vanessa Fuhrmans‘s interesting article in the Wall Street Journal, please click here.
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