5 findings from a CEO pay ratio study: Pearl Meyer

A new study on CEO pay ratios acknowledges that some see the disclosure requirement as a way to change what can be a massive gulf between CEO pay and median employee pay at a company. But it advises boards of directors against using results to change compensation programs.

It also cautions against comparing companies and their CEO and median employee pay.

So says executive compensation consultancy Pearl Meyer on the release of The CEO Pay Ratio: Data and Perspectives from the 2018 Proxy Season, based on information from Main Data Group and published in conjunction with The National Association of Corporate Directors.

Here are five interesting findings from the study:

1. The average CEO pay ratio is 144:1, and the median ratio is 69:1.
2. Pay ratios appeared to be affected more by the level of median employee pay than CEO pay.
3. Median employee pay was higher than expected –  $80,992  — and was highest among companies with fewer than 500 employees.
4. There was no correlation between the CEO pay ratio and company performance (as measured by 3-year average total shareholder return).
5. There was no correlation between the CEO pay ratio and CEO tenure – typically CEOs stayed with companies between 6.5 and 7.5 years.

“Consumer discretionary” is the industry with the highest ratios with an average of 384, it said, while the utilities, financial, and energy industries are lowest.

The study acknowledges that the higher pay of CEOs compared to their employees is an emotional issue.

It suggests that Boards of Directors display some “sensitivity” to how employees perceive CEO pay and pay ratios. And it recommends communicating to employees about how their compensation and the CEO’s compensation is determined.

Calculating CEO pay and median employee pay isn’t an easy task, according to the report: “There are numerous outliers, including several cases where CEOs did not receive pay or were paid a nominal sum.”

The report mentioned the difficulties some companies had in coming up with data, noting that some multinational corporations had to hire teams of consultants to sift data from multiple systems.

Findings were based on Pearl Meyer’s analysis of more than 45 data points for each of 2005 public company proxy filings available on June 30, 2018.

Major factors under consideration included industry, firm revenue, number of employees, and percentage of a company’s workforce based outside the U.S. as having important impact on the average CEO pay ratios.