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Surprising CEO Pay Ratio Outcomes

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May 10, 2018 | Jennifer Namazi

Surprising CEO Pay Ratio Outcomes

I've been following the new CEO Pay Ratio disclosures this proxy season and I have to say there are some surprising after effects of such disclosures. 

  • Pay ratio stories are plentiful in mainstream media. Turns out, there is some exciting stuff in these disclosures. Or at least in terms of what the pay ratio and median employee data might trigger as reactions within public perception. 

  • The average person might just be more interested in learning the median employee pay of a company than the ratio of that pay to the CEO's pay - even those that have no idea about the disclosure. While both aspects seem to be well covered in the media, I'm seeing new articles that have headlines like "Looking for a Bigger Salary? These Companies have the Highest Median Pay." (Washington Post, April 26, 2018) Certainly, now prospect employees have access to pay information that could help their compensation negotiations. I wonder if we'll see more questions in employment interviews asking about how the median employee pay is calculated? This could expand the communication needs/strategy beyond current employees. 

  • Companies with significant non-US employee populations may have some work to do in educating the masses about their median employee pay. For example, an article in the San Francisco Chronicle ("Yes, median pay at Facebook is about $240,000 a year" - Kathleen Pender, April 27, 2018 (Barbara Baksa, NASPP's Executive Director, is quoted in this article)) pointed out that "Align Technology of San Jose, which makes the popular Invisalign teeth straighteners, said its median employee is a technician in Costa Rica making $12,764, 'which is competitive pay for a technician position in Costa Rica.' Its CEO made 920 times that." At first glance someone might see that type of ratio and overlook the fact that not all employees are in the US, earning US wages - and that median employee may come from a completely different pay landscape altogether.

  • It's going to take a long time to figure out the impact of these disclosures. In my blog last month, I commented that it was going to take a deep dive into details to truly be able to analyze the ratios and how they compare from company to company - even among seeming peers. That idea still stands - with the added layer that more time will be needed to truly understand what the effects of these disclosures.

  • Lastly, I haven't heard of any employee revolts just yet. At least not over the pay ratio disclosure. 

When we initially thought about how the CEO pay ratio disclosure would affect employees, it was more of a concern about relating the information to one's own pay without enough supplemental information. Possible morale issues could ensue. I'm not sure companies anticipated just how interesting of a news story their disclosures might become. One thing seems certain - with all the headlines and attention on the disclosures, there certainly will be a lot for employees to digest. One suggestion for companies who are making the disclosures - you can count on your employees to access the various articles and media coverage about the topic - particularly as relates to your own company. Now is the time to ramp up communication about the disclosures - even if you have been slow to ramp up. Better late than never. 

-Jennifer 

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