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A CEO Pay Ratio of Over 40,000 to 1!

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May 14, 2019 | Barbara Baksa

A CEO Pay Ratio of Over 40,000 to 1!

40,000 to 1! :o

Can you guess which company has a CEO pay ratio of more than 40,000 to 1? Here are a few hints:

  • Last year, the company issued a humungous walrus mega grant to its CEO for a number of shares equal to 12% of the company’s total common stock outstanding.
  • The CEO has been in the news lately for his controversial tweets (this gives away that the CEO is a man, but you probably could have figured that out even without the pronoun).
  • The company has not yet had a profitable year and does not consistently meet production goals.

You guessed it—the company is Tesla and the CEO is Elon Musk. The mega grant is intended to compensate Musk, who does not draw a salary from Tesla, for the next ten years—so Tesla’s CEO pay ratio for the next nine years should be 0 to 1. An outsized CEO pay ratio is one drawback of mega grants.

I was alerted to this interesting news item by a Bloomberg article that charts out all reported CEO pay ratios (the article is updated periodically as new ratios are reported). Below are a few other tidbits from the article.

Close but No Cigar

The next highest CEO pay ratio behind Tesla’s (at least, so far) is Mattel, with a ratio of 3,401 to 1. Mattel notes that their ratio is high because of a one-time inducement grant to their new CEO. Without the inducement grant, the Mattel’s CEO pay ratio would have been 2,598 to 1, which is better but still higher than most companies (high enough that it would still fall in Bloomberg’s “outliers”).

Mattel is one of the few public companies to publish a supplemental ratio, as is allowed under the SEC’s rules. But I’m not sure a supplemental ratio of almost 2,600 to 1 makes anyone feel better about their CEO’s pay. Also, Mattel was in this same situation last year, when their CEO pay ratio was 4,987 to 1, also because of a one-time inducement grant for their new CEO (a different CEO than this year’s new CEO)—apparently, they are having trouble getting a CEO to stick around, despite their outsized inducement grants.

Another reason Mattel’s ratio is so high is that their median employee’s pay in 2019 is only $5,489. They voluntarily disclose that 82% of their employees are located outside the United States and most work in manufacturing, noting that the median employee works in their manufacturing facility in Indonesia.

What About Disney?

Compared to Tesla and Mattel, Disney’s ratio, which drew highly publicized criticism from a Disney heir, was modest at 1,424 to 1 (but still well above the median).

Median of the Median

The company at the median (i.e., the median of the CEO to median employee pay ratios) is ConocoPhillips, with a ratio of 143 to 1, which is about what their ratio was last year.

The Lowest

Three companies have ratio of 0 to 1: Square, Ubiquiti Networks, and Liberty Broadband.  The CEOs of Square and Ubiquiti draw no compensation (either salary or equity awards) and haven’t for several years. In the case of Liberty Broadband, the CEO received a grant of a stock option for 1.5 million shares (about 5% of the company’s class A common stock at the time) in 2014 and also received grants of stock options and RSUs in 2019.

- Barbara

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