Pay Ratio Overview: “Much Ado About Nothing”

pay ratio reporting

Pay Ratio Overview: “Much Ado About Nothing”

“In a false quarrel there is no true valour.”   (Benedick, Act 5 Scene 1)

Pay Ratio reporting was inserted into Dodd-Frank at the urging of organized labor. The AFL-CIO has tracked the ratio of the average proxy reported total compensation of S&P 500 CEOs to the Bureau of Labor Standards’ average wages paid to all U.S. workers (including farms and small businesses). A statistic designed to produce inflated results and outrage.

For 2016, the AFL-CIO reported a ratio of 361:1. The actual apples-to-apples ratio for S&P 500 companies was 155:1, less than half labor’s number. Further, the data showed that this ratio varies significantly with size – the top 100 had a ratio of 235:1 with the broad market Russell 3000 estimated as closer to 70:1.

This year’s “madness of executive pay” press articles did report the new ratio, but given the actual levels versus expectations, it was difficult for the dudgeon to get too high. That being said, we do expect that the true outliers (e.g., Weight Watchers – 5908:1; Mattel – 4987:1; Abercrombie & Fitch – 3431:1) will experience significant pushback.

It should be noted that many of the “problematic” ratios include lots of low-skilled part-time or foreign workers.

For more about pay ratio reporting, contact our compensation experts.

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