Chief executives at S&P 500 companies make about 127 times what their median employee takes home, according to new data taken from about half of S&P 500 companies. This year for the first time, companies are disclosing these numbers, in compliance with Dodd-Frank rules put in place in 2010.
But while the ratio is interesting, it’s a frustrating metric for many experts.
Since executive pay was fairly transparent prior to 2018, the only new piece of information is median employee compensation. It’s useful for workers to see where they fall in their organization and in their industry when it comes to pay, but since the new rule allows several definitions of “median employee”, it’s difficult to compare the numbers across companies.
Eric Hoffman from executive compensation consultant Farient says it’s important to consider industry and business model when looking at the ratios.
For example, Warren Buffett makes just twice as much as the median employee at Berkshire Hathaway, while CEO of toymaker Mattel has the highest ratio so far at nearly 5,000:1.
But Mattel employs a high percentage of seasonal, hourly workers, driving their median employee pay down and causing the ratio to increase. Meanwhile, Berkshire Hathaway has fewer, higher-paid employees and much of Buffett’s wealth is in equity, keeping the ratio low.
The future of the disclosure rule is uncertain in a pro-business, anti-regulation political environment. Hoffman says it’ “has one of the least utilities” of the rules implemented in the Dodd Frank legislation, which Trump and Republicans would like to dismantle.
This article originally appeared in the May 1, 2018 issue of Coins2Day.
