August 27, 2015
Pay Ratio: Media Tries to Sleuth Out Ratios Based on 3rd-Party Data
– Broc Romanek, CompensationStandards.com
I’m wrapping up a comprehensive “pay ratio” chapter for our “Executive Compensation Disclosure Treatise” and came across this article by Quartz. Here’s an excerpt:
Starting in 2018 [Broc’s correction], US companies will have to report the ratio of their CEO’s pay to the average employee’s salary to the Securities and Exchange Commission. But why wait? Salary-data aggregator Glassdoor put together a ranking of pay ratios for companies in the S&P 500 based on the median employee pay data it has and CEO pay data from company filings. At the top: David Zaslav of Discovery Communications with an astounding ratio of 1,951-to-one, followed by the chiefs at Chipotle (1,522), CVS (1,192), and Walmart (1,133).
The biggest takeaway? We have no idea what these ratios really look like. Estimates are wildly inconsistent. And it’s unclear how much better things will be under the new rules since companies will get to choose how they calculate employee pay.
A recent analysis from Payscale, also an online salary aggregator, came out with an entirely different ranking and vastly lower ratios. Larry Merlo of CVS tops its list, but with a ratio of 422-to-one, compared to 1,192 from Glassdoor. Payscale’s highest estimated ratio would only make the 37th spot on Glassdoor’s ranking.
A separate Bloomberg analysis computed average worker pay in a different way, using publicly available data, and came up with a whole other set of estimates and rankings. Bloomberg puts the average salary at JP Morgan at $124,959, compared to $65,344 from Glassdoor. Consequently, Glassdoor’s estimate of the pay ratio is twice as high.
To make it more confusing, Glassdoor isn’t universally higher. Bloomberg has ex-McDonald’s CEO Don Thompson in first place with a pay gap ratio of 644 to one. Glassdoor puts the ratio at 422.
Some caveats are in order for data from sites like Payscale and Glassdoor. Their salary data is self-reported by employees, and not entirely reliable. And as Glassdoor notes, CEO pay varies highly from year to year, due to things like stock options and bonuses. Employees tend to underreport such earnings to Glassdoor, and the distribution of people who report on the site may be skewed in terms of pay or seniority. Some companies have already disputed the average salaries reported by Glassdoor.
Here’s a note that I received from a member in response:
According to this Reuters article, the Glassdoor study (which I couldn’t find anywhere on Glassdoor’s website) used “CEO compensation figures reported by 441 S&P 500 companies through Aug. 14 and Glassdoor.com user reports about salaries at those companies. Only companies for which Glassdoor had 30 or more worker salary reports were included. The data could be skewed if workers under-counted tips or bonuses, Glassdoor said.” Anyone using Glassdoor or Payscale stats as reliable is irresponsible – but some journalists obviously are (here’s another example).