July 29, 2015
Survey: Pay Ratio Disclosures So Far
– Broc Romanek, CompensationStandards.com
Last week, I blogged about Mark Borges’ blog about a comprehensive pay ratio disclosure – and then Mark followed up by blogging about some more samples. And now thanks to Simpson Thacher, we have this survey on pay ratio disclosures that they prepared in late March. The survey also includes some examples of companies that provide a comparison of compensation increases/decreases among the CEO and average employee.
To prepare this survey, Simpson Thacher searched all SEC filings since 2010 for companies that have disclosed the ratio of CEO to employee pay and found 16 examples. In reviewing these 16 examples, they noted the following data points for their disclosure:
1. Employees Included in Comparator Group
– Three (19%) note that the employee comparator group includes all employees, including part-time or temporary employees.
– Three (19%) note that the employee comparator group is limited to full-time employees.
– Three (19%) impose geographic restrictions on which employees are included in the comparator group (e.g., limiting to strictly U.S. or UK employees).
– Seven (44%) did not specify which employees are included in the comparator group.
2. Compensation Included
– Nine (56%) compare the CEO’s total compensation to the average total compensation for the company’s employees.
– Three (19%) compare the salary of the CEO to the average salary for the company’s employees.
– Three (19%) have two separate ratios: one based on salary, and one based on both salary and bonus.
– One (6%) has two separate ratios: one based on salary, and one based on total compensation.
3. Basis of Employee Comparison (Average vs. Median Salary)
– Three (19%) use the average salary for employees as the basis of comparison.
– Five (31%) use the median salary for employees as the basis of comparison.
– Eight (50%) use both the median and average salary for employees as a basis of comparison.
The first section, titled “Examples of Pay Ratio Disclosure”, includes the disclosure of the 16 companies discussed above, as well as information regarding the data points. Among these 16 examples, five companies (31%) have a market cap under $100 million; four companies (25%) have a market cap between $100 million and $1 billion; and seven companies (44%) have a market cap of over $1 billion. In addition, of these 16 companies, nine (56%) employ fewer than 1,000 employees, while only Whole Foods and Israel Chemical employ more than 5,000 employees. Further, seven companies (44%) are incorporated in Israel, as such disclosure appears to be encouraged under Israeli corporate law.
The survey also includes an additional chart at the end, titled “Examples of Compensation Increase Disclosure,” which includes seven examples of companies that disclose percentage pay changes (i.e., the annual percentage increase in pay of the CEO and other top executives, and the comparable percentage increase for all other employees). This disclosure, although it does not provide pay ratios, was provided by companies that all employed more than 1,000 employees (or, with respect to Aon, Astrazeneca, Avery Dennison and Reed Elsevier, employed more than 25,000 employees), and indicates the type of compensation used and the employees considered for the disclosure.