The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

May 21, 2018

Pay Ratio: A Congressman Weighs In (With a Study)

Liz Dunshee

A member of Congress is now using pay ratio data to examine income inequality. This study from Rep. Keith Ellison’s staff (D-Minn) looked at pay ratios from 225 large companies that were responsible for employing more than 14 million workers. When it comes to “extreme gaps,” it “names names” – and it also seems to assume that companies that excluded portions of their workforce were doing so to keep their ratio down.

This article describes the findings – here are the main ones:

1. Pay ratios ranged from 2:1 to 5000:1. The average was 339:1 – compared to 20:1 in 1965

2. 188 companies had a ratio of more than 100:1 – so the CEO’s pay could be used to pay the yearly wage for more than 100 workers

3. Median employees in all but 6 companies would need to work at least one 45-year career to earn what their CEO makes in a single year

4. The consumer discretionary industry had the highest average pay ratio – 977:1

I think it’s easy to become numb to high CEO pay when you work with it all the time and you’re focused on the mechanics of programs and disclosures. This study is a reminder that no matter how useless pay ratio seems to companies, people outside of this field are paying attention – and they’re synthesizing the data not just to compare companies, but to show that outsized executive pay is a pervasive issue that interests many.