July 24, 2018
Voting Data: Pay Ratio’s Impact on Say-on-Pay
– Liz Dunshee
Most companies have now made their first pay ratio disclosure – and held their first say-on-pay vote in which shareholders could consider that information. It’s looking like shareholders consider pay ratio as a factor – but it’s not a primary driver of votes. This Semler Brossy memo analyzes the results in detail. Here’s some highlights:
– Average say-on-pay support of 87% for S&P 500 companies that disclosed an above-median pay ratio, compared to 91.6% support for companies with a below-median pay ratio. This correlation was weaker among Russell 3000 companies.
– Say-on-pay results were 31% lower at companies that received an ISS recommendation “against.”
– While only 21% of the Russell 3000 disclosed a pay ratio above 175:1, those companies made up 46% of all say-on-pay failures.
– Pay ratio typically is more influenced by the CEO’s pay than the median employee’s – especially for ratios below 100:1. This means the ratio tends to grow with company size & revenue (factors which typically lead to higher CEO pay but not higher median employee pay). The median pay ratio of the S&P 500 is more than 2x the median ratio of Russell 3000.
– Pay ratios differ greatly by sector – e.g. utility companies have lower ratios due to unionized labor and higher median employee pay. Companies with bottom quartile median employee pay have significantly higher ratios, driven by part-time or seasonal workers.