CEO-to-employee pay ratios ‘lower than expected’

Register now

Your company’s CEO might not be making as much as you thought she was.

Global HR consulting firm Mercer surveyed 117 companies across 12 industries and found that 60% of companies estimate the CEO-to-median-employee pay ratio is under 200:1.

The pay ratio is lower than the 300:1 ratio frequently publicized, according to Mercer.

“While the ratio may still seem significant to some, it is not as high as many might think,” says Gregg Passin, senior partner at Mercer. “More importantly, it confirms what we expected — ratios differ by industry, with the highest ratios in the retail/wholesale and consumer goods sectors and the lowest ratios in the banking/financial services and technology sectors.”

Passin adds that financial services companies are often criticized for excessive pay yet have lower ratios than most other industries.

See also: 10 top compliance issues for 2017 benefit planning

It’s important to note that employee salary affects the ratio, particularly for high-paying jobs in those low-ratio sectors.

For example, a retail sales associate at Macy’s Inc. earns between $16,563 and $32,801 in salaried pay, according to PayScale, the world’s largest database of 54 million individual salary profiles. Meanwhile, a financial or banking analyst makes between $39,927 and $94,800 each year.

The survey also notes that industries with more professional staff have lower ratios than industries with more part-time, temporary and less-skilled employees.

Mercer conducted the survey to gauge companies’ level of readiness for the Securities and Exchange Commission’s CEO pay ratio disclosure rule.

As mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, all public companies will have to disclose the ratio of the CEO’s total pay to the median total pay of all U.S. and non-U.S. employees beginning in 2018.

See also: Employees demanding better pay, benefits

While the 2018 date may seem a long way off, according to Mercer’s survey, three-quarters of companies have already selected or are considering one or more calculation methods for determining the median employee salary.

“Compliance requires advance planning and can be challenging, particularly for companies lacking robust payroll or HRIS systems or operating in many countries,” says Passin. “Companies will also need to assess the disclosure’s impact on various stakeholders, especially employees – half of whom will learn that their pay falls in the bottom half at their company.”

For reprint and licensing requests for this article, click here.