The Advisors' Blog

– Broc Romanek

A lot has been written over the last week about PayScale’s recent study of pay ratios in the workforce. PayScale found an average ratio of 71:1 comparing median cash compensation for 168 of the highest-paid CEOs in the annual Equilar 200 study to cash compensation of the median employee for those companies.

This ratio is far below what other organizations – like the “AFL-CIO PayWatch” – have found. That’s because PayScale only used cash compensation in its calculations – not the big hitter items like options, restricted stock, etc. As noted in this blog, equity accounted for 68% of the CEO compensation included in the Equilar 200 study used for the PayScale comparison. In other words, on average, less than one-third of CEO compensation was earned in cash.

I find PayScale’s exercise a tad misleading because the SEC’s rules don’t allow a comparison of just cash compensation – annual “total” compensation must be used in the ratio. Enough said.

One good thing about the PayScale study is that it provides information about employee perception of CEO pay, including:

– 55% of employees were not aware of their CEO’s compensation – among those that were, 80% believed it was appropriate
– 57% of those who felt that their CEO is overcompensated also believe that this negatively affects their view of their employer
– Employees at higher levels have more knowledge about – and more readily approve – of CEO compensation than lower level employees