CEO-to-Worker Pay Gap in the United States
The CEO of an S&P 500 Index company made, on average, 354 times the average wage of a rank-and-file U.S. worker in 2012. [1] CEOs in the United States don’t just make a lot more money than their own employees. On average, U.S. CEOs also make far more than CEOs of comparably sized companies in other countries.
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that companies disclose the ratio of pay between the CEO and median employee. However, these pay ratios will remain a secret until the U.S. Securities and Exchange Commission (SEC) issues new rules to implement the law.
Not surprisingly, corporate groups oppose the disclosure of CEO-to-worker pay ratios by companies. Both the HR Policy Association's Center on Executive Compensation and the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness have urged repeal of Section 953(b) of the Dodd-Frank Act. [2]
CEO-to-worker pay ratio information is essential for investors to determine if a company’s executive pay is excessive. Academic studies have found that high pay disparities between CEOs and their employees can hurt employee morale, reduce workplace productivity and lead to increased employee turnover. [3]
According to SEC Commissioner Luis Aguilar, “The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can also create risks to an enterprise, including the risk of employee, customer and shareholder discontent.” [4] He suggests that companies voluntarily disclose their pay ratio data.
One company that voluntarily discloses pay ratio information is the Bank of South Carolina. The bank has disclosed that its chairman received five times its median employee pay, and its CEO received four times its median employee pay in 2012. The bank’s median salary for all employees other than its executives was $48,201.48. [5]
At Whole Foods Market, top executives’ cash salaries are capped at a ratio of 19 times that of the company’s average annual wage. The company explains that its “compensation philosophy emphasizes internal pay equity and fair treatment of all stakeholders.” In 2012, its Co-CEO John Mackey received just $1 in pay. [6]
NorthWestern Corp. discloses that its 2012 CEO compensation was about 21 times the median of its full-time employees. The utility company says it is “committed to internal pay equity” and “monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees.” [7]
[1] 2012 U.S. CEO-to-worker pay ratio calculated based on AFL-CIO analysis of average CEO pay at 327 companies in the S&P 500 Index, which disclosed 2012 CEO pay data as of April 1, 2013, as provided by Salary.com. 2012 U.S. worker pay data calculated from the U.S. Bureau of Labor Statistics' Current Employment Statistics Survey—Table B-2: Average hours and earnings of production and non-supervisory employees on private non-farm payrolls.
[2]
FAR Agenda 2013, Center for Capital Markets Competitiveness
, U.S. Chamber of Commerce.
Letter from the Center on Executive Compensation, HR Policy Association, to the Honorable Nan Hayworth
, U.S. House of Representatives, March 15, 2011.
[3]
See Why CEO-to-Worker Pay Ratios Matter for Investors
, AFL-CIO, July 18, 2011.
[4]
Shareholders Need Robust Disclosure to Exercise Their Voting Rights as Investors and Owners
, Commissioner Luis A. Aguilar, U.S. Securities and Exchange Commission, Feb. 20, 2013.
[5] 2013 Proxy Statement, Bank of South Carolina Corp.
[6] 2013 Proxy Statement, Whole Foods Market Inc.
[7] 2013 Proxy Statement, NorthWestern Corp.
