Under a provision of the 2010 Dodd-Frank financial reform bill, companies must disclose the ratio of the pay between the CEO and the company’s median employee. While shareholders had insight into executive compensation under prior rules, this is the first insight into median employee pay. It should not be skimmed as another number amongst so many in a proxy statement but considered for the insight it may offer into decent work. 

We now have multiple years of data, and shareholders are just beginning to utilize the information. For example, comparing within an industry makes it is easy to tell what companies are high road and which are low road. In the retail sector, the median employee at Walmart earns $21,952 a year, and the ratio of median employee pay to CEO pay is 1,076:1. At Costco, the median employee earns $47,312, and the pay ratio is 169:1. Costco also offers supplemental disclosures. Meanwhile, in the food sector, the median worker at Yum! Brands, which includes Pizza Hut, earns $11,865, and the pay ratio is 1,181:1. The median employee at Papa John’s earns $9,201 a year, and the ratio to CEO pay is 614:1. Domino’s does considerably better: the median employee earns $19,077, and the pay ratio is 477:1.

At several retail and food companies, half the employees made less than $10,000 last year. Trade groups may have people believe that these are high school students, as if they were earning money to buy extra milkshakes at a diner. The group Fight for Fifteen and others have demonstrated that most minimum wage employee are not teenagers, but instead often women of color. 

Critics of pay ratio disclosure claim that it is inconsistent and include features that make comparisons challenging. For example, the SEC currently allows companies to identify one employee as the median employee for comparison to the CEO and use that same person for three years. Ideally, the figure should be recalculated every year. Yet, the pay ratio figure will become more useful as best practices evolve. 

In general, best practices include better disclosure. The Say on Pay Working Group, co-led by Maureen O’Brien of Marco Consulting and the AFL-CIO’s Brandon Rees, review proxies to identify whether companies include the following in their disclosures:

• Identification of the median employee’s job function      

• Breakdown of workforce by job function and/or business unit              

• Geographic location of the median employee      

• Country-level breakdown of global employee headcount

• Breakdown of full-time vs. part-time employment 

• Use of temporary or seasonal employees             

• Use of subcontracted workers          

• Tenure and experience of workforce       

• Workforce education levels and skillsets 

• The company's overall compensation philosophy              

• Employee compensation mix     

• Alignment of CEO pay practices with pay practices for other employees

These are areas where many companies can improve disclosure, and questions about these areas can be part of any engagement with companies on decent work. As more comparable data are gathered, shareholders will be able to utilize the information to identify the gaps in their companies’ disclosures and gain additional insight into the ratio between worker and CEO pay.

Rosanna Landis Weaver
Program Manager, Power of the Proxy, As You Sow