What we discovered in speaking with reporters is that few truly understood the nuances and the flexibility that the rule afforded in reporting the numbers. The national average salary for a CEO is $151,987 in United States. To the surprise of many, this number came in on average much higher than anticipated, at approximately $81,000, with $25,000 at the 10th percentile. Advocates of the CEO Pay Ratio disclosure seemed to be of the mindset that the ratio would correlate with company performance. The average CEO-to-worker pay ratio for the 168 companies included in this report stands at about about 70-to-1, with some CEOs making more than 300 times the median salary … 3, with $45 million, double his 2017 compensation. Further, directors would be ill-advised to try to make critical compensation decisions based on the ratio itself. For two consecutive years, Berkshire Hathaway was the largest company by revenue in the Equilar 100 study, topping out Apple each year. The AP's CEO compensation study included pay data for 340 executives at S&P 500 companies who have served at least two full consecutive fiscal years at their companies, which filed proxy statements between Jan. 1 and April 30. In fact, the SEC’s release noted that in the absence of guidance from Congress, it surmised that the ratio was intended to provide shareholders another piece of information to understand compensation practices. While the rule presented a challenge for companies and was a significant change in compensation disclosure, our expectations in terms of the significance of the data on compensation programs were low. The number -- which includes salary, stock, bonuses and other compensation -- is 7% higher than in it was in 2017, for an average pay hike of $800,000 for large-company CEOs. The eight-figure packages continue to rise as companies tie more of their CEOs' pay to their stock prices, which are still near record levels, and as profits hit an all-time high last year due to lower tax bills and a still-growing economy. They say, 'Ok, your company is great, you should give back something. In our experience, some companies did not avail themselves of this exception because: (1) they had fairly easy access to their non-U.S. data; (2) including overseas employees led to a more desirable outcome; (3) they didn’t want to include the extra disclosure associated with the exemption (e.g., total number of employees excluded in each jurisdiction); and/or (4) they had an entirely U.S.-based population. Lets pretend a company made a billion in revenue for 2019 and the CEO “earned” 10 million in total compensation (salary, performance bonuses, and stock awards). Companies with the lowest pay ratios (under 35) have CEOs with average tenure at 7.5 years, while those on the higher end of the pay ratio range have an average CEO tenure of 6.9 years. Of the 340 CEOs in this year's survey, just 19 were women. At Alphabet, for example, the median employee had compensation of $246,804 last year, up 25% from the year before. "I have the impression that here in the U.S., the culture is still — maybe rightly so — that if your CEO is successful, you are entitled to make basically as much money as you want," said Luca Paolini, chief strategist at Pictet Asset Management, which is based in Switzerland. Others in the top ranks iinclude Hologic's Stephen MacMillan and Align Technology's Joseph Hogan -- both made $42 million last year -- and PayPal's Daniel Schulman ($38 million), Netflix's Reed Hastings ($36 million) and Comcast's Brian Roberts ($35 million). That was down only slightly from 95% a year earlier. The total median pay package for chief executives at S&P 500 companies rose to $12 million last year. While the rule presented a challenge for companies and was a significant change in compensation disclosure, our expectations in terms of the significance of the data on compensation programs were low. Median employee pay was also highly correlated with company size (determined by revenue) but in the opposite direction from the pay ratio. Most companies believed that the exercise would be overly complicated, expensive, and provide little to no value to investors, especially for global companies whose workforces include international and part-time workers. De Minimis: The SEC rules permit companies to exclude up to 5% of non-U.S. employees from consideration in identifying the median employee. As noted, the SEC permitted a wide variety of assumptions and methodologies to choose from in calculating the ratio, adding another complication to the supposed benefits of comparing ratios across companies. —Deborah Lifshey Managing Director, Pearl Meyer. Companies under $300M had an average median pay of just over $100,000, while those at the largest companies averaged just over $70,000. The industries with higher CEO Pay Ratios (e.g., consumer discretionary and staples) also had the lowest median worker averages at around $38,000 to $57,000, indicating that the median employee pay number likely had an important influence on the ultimate CEO Pay Ratio. But not one institutional investor has ultimately admitted to using the CEO Pay Ratio outcomes in their voting decisions thus far. Most companies took a “less is more” approach to the disclosure overall and avoided supplemental disclosures. Unfortunately, any clear leg… As anticipated, almost all disclosures have been brief (at around three paragraphs) and include only the essential data needed to comply with the rule. In Salary.com's tally of the top 5 areas for average CEO pay (the mean this time, not the median), Tennessee came in at No. Average salary for CEO is US$ 160,280. A proxy statement (or "proxy") is a form that every publicly traded U.S. company is required to file with the U.S. Securities & Exchange Commission (SEC) within 120 days after the end of its fiscal year. Among the most controversial of these rules is the requirement for public filers to disclose in their annual proxy statements the CEO’s total annual compensation, the total annual compensation of the median employee of the organization, and the ratio between the two, which has become known as the “CEO Pay Ratio.”. Our research indicates that about 25% of companies took advantage of this exemption. While the SEC permitted the exemption, it required companies to jump through a series of hoops and, at the end of the day, companies were able to use workarounds to capture employee data without associations to employee names, thus circumventing most privacy laws. Those companies with a population under 500 had an average pay ratio of 36 compared to those with employee populations over 10,000 with average pay ratios of 337. But now that companies have submitted two years of data, investors can see how the gap in pay is trending at individual companies. Some companies with highly paid CEOs did not fit these criteria and were excluded, such as Safra Catz and Mark Hurd, co-CEOs of Oracle. Our research and analysis is summarized in the following pages. At more than 40% of the companies in this year's survey, the CEO's pay rose by at least double the percentage of the median worker's pay gain. Collecting even the CACM data for large multi-national companies without unified payroll systems presented a huge challenge. Almost 20% of companies included overtime pay. Most other compensation elements (e.g., commissions, allowances, retirement/ pension, and other benefits/perquisites) are only sporadically included. Some boards we spoke with viewed the additional disclosure as a double edged sword—while, overall, the populist messaging of a lower ratio may have been a short-term goal, any benefit reaped from the lower ratio was surely overshadowed by the required ratio, as well as possible negative inferences one may draw from the alternate ratio discussion (e.g., “If we don’t pay attention to part-time or overseas employees, or CEO mega-grants, our ratio looks better.”). News provided by The Associated Press. The CACM is a methodology that enabled companies to pick certain elements of compensation that would generally represent the distribution of compensation over all employees to identify the median employee. The SEC’s regulations implementing the pay ratio requirement provided public companies tremendous leeway to calculate and disclose. As noted in Business Insider here, Seth Levine’s observation on CEO salary in 2012 still holds true comparable to the 2019 Kruze salary report data above: early on companies that have raised $500,000 or less cap out at $75,000, companies that have raised $1 million or less pay between $75,000-$125,000, companies that have raised between $1-$2.5 million pay closer to $125,000. The salary-to-revenue ratio is only meaningful if the company has no costs other than salaries, or its non-salary costs are so insignificant that the company can ignore them. '", First published on May 24, 2019 / 2:03 PM. That is, the smaller the employee base, the higher the median pay. (As one might expect, in most of these cases the CEOs were large equity holders or founders of the company.). Our study tracked pay ratios by the size of the company as measured for this purpose in terms of revenue. The median pay increase for the typical worker at an S&P 500 company grew just 3% last year, or less than half the rate that the top boss enjoyed. Filter by location to see CEO salaries in your area. However, ISS also indicated that it would continue to assess the CEO Pay Ratio data as it becomes available and will continue to assimilate feedback from investors on the usefulness and application of this new disclosure, leaving the door open for its treatment in 2019. [1]. He earned about $429,000 in base plus bonus—and his bonus was just $35,000—in fiscal year 2012, based on the latest tax filing. While increases in base salary for NEOs were similar to those for total compensation, NEOs benefited from much higher bonuses, especially in the S&P 500. The largest salary increases — about 9% — were seen at companies with revenue between $1 billion and $2.5 billion, followed by 5% for companies with revenues of $5-$10 billion. Compensation fell for the median worker at most utilities last year. However, we anticipate that supplemental ratios may become more prevalent in 2019 filings when year-over-year company-specific comparisons are under the microscope. In many cases, the dissenting voices are coming from shareholders outside the United States. The proxy must be sent to every shareholder in advance of the company's annual shareholders meeting. Powered and implemented by FactSet. "For the kind of numbers we're seeing on the unemployment rate, or the length of the recovery, all those numbers would tell us that we're in an incredibly good economy. This year, we expanded the data to over 200 of our seed and venture-backed clients and found that in 2019, CEO salaries rose to an average of $142,000 annually, nearly a 10% increase. Most of our clients were averse to this option because it meant running the methodology two ways, along with disclosing two different ratios, which may have detracted from the favorable ratio derived with the COLA adjustment. The average Chief Executive Officer salary in the United States is $766,712 as of December 28, 2020, but the range typically falls between $579,411 and $987,678. (go back), 3https://www.sec.gov/rules/final/2015/33-9877.pdf(go back), 4“Communicating Compensation in 2018” https://www.pearlmeyer.com/knowledge-share/research-report/communicating-compensation-in-2018(go back), Posted by Deb Lifshey, Pearl Meyer & Partners, LLC., on, Harvard Law School Forum on Corporate Governance, on The CEO Pay Ratio: Data and Perspectives from the 2018 Proxy Season, Related research from the Program on Corporate Governance includes, by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum, https://www.sec.gov/rules/final/2015/33-9877.pdf, https://www.pearlmeyer.com/knowledge-share/research-report/communicating-compensation-in-2018. When might you get Biden's $1,400 stimulus check? The most profound decrease from the required ratio occurred when companies provided a supplemental ratio that excluded part-time and seasonal employees. However, as expected, the pay ratio provided ongoing storylines for reporters focusing on executive pay. Not surprisingly, there is substantial variation across companies and industries, with one of the highest ratios at approximately 5900:1 and many ratios at 0, in cases where CEOs did not take any reportable compensation for the year. The chief financial officer, or CFO, oversees the financial side of a company's management. "It's a natural thing for a CEO and a board to say, 'How are others who are doing similar work paid?' CFO Salary Ranges. The complete publication, including Appendix, is available here. Source: Company Reports CEO SALARY SURVEY | Rank Senior Executive Title Company Name Total Salary Base Salary Bonuses Shares / Options Superan-nuation Special Payouts Company Profit / Loss Total Revenue 1 Don Voelte Previous Managing Director Woodside Petroleum $7,900,020 $2,607,456 $1,734,202 $3,432,892 $125,470 $1,604,140,000 $4,265,162,000 Median employee pay was inversely correlated with revenues and employee population (the higher the revenue/more employees, the lower the average median compensation). This would make sense as median employee pay (the denominator in the ratio) is generally expected to be more variable than CEO pay (the numerator). Rather, it seems that investors who are truly concerned with executive pay already express concerns through their say-on-pay opportunities, where they are asked to vote for or against the executive pay program generally or can even vote down directors for poor pay practices. Economists say several trends are holding back wage gains, including businesses facing intense pressure from online and overseas competitors. CEO Compensation Also Varies by Ownership Type The desire to “smooth out” the impact of one-time or multi-year grants to a CEO was the most commonly occurring reason to provide a supplemental ratio. But the last time the jobless rate was almost this low, in the late 1990s, hourly pay rose at a 4% to 4.5% rate. Companies in the consumer discretionary and consumer staples sectors were understandably at the higher end at 384 and 295 on average. There is a close correlation between the size of the pay ratio and revenue. In this first year, CEO Pay Ratio discussions were simply not on many, if any, investor radar screens. The table below shows the complete list of Fortune 100 company revenue with annual growth and their CEO compensation. And with larger, multinational companies dominating more industries, workers have fewer alternatives to jump to in search of a raise. The measure is far from perfect, mostly because companies have a lot of flexibility in how to calculate the numbers. The Associated Press contributed to this report. What most of the articles excluded, though, were the important differences in demographics and assumptions that went into computing the ratio. Detailed salary report based on location, education, experience, gender, age etc. 2019 Startup CEO Salary Report. We anticipate disclosures may trend longer in the second year of filings if companies feel it necessary to discuss how their ratios compare with those of their peers or industry. However, it would be unwise for companies to ignore the current groundswell of public debate on pay. (Anecdotally, we know some smaller domestic companies were able to complete the process in less than a week.). CEO Variable Pay as a Percentage of Salary by Company Revenues - Median Value of CEO Ownership of Company Equity by Company Revenue – Median Total CEO Compensation by Company Revenue – 75th Percentile Many have been hopeful that the disclosure will, over time, close the gap between median employee and CEO pay, but we do not believe boards or management teams should be relying on pay ratio data to drive executive compensation or employee pay decisions. For a company in a cheaper area, with cheaper talent or else just fewer engineers (e.g., more sales staff), then it would become feasible for the CEO's salary to be $200-250k. To arrive at these conclusions, Pearl Meyer and Main Data Group collected and studied more than 45 data points associated with each of the proxy filings of 2005 public companies as of the end of the second quarter 2018. But it's only slowly seeping into the conference rooms where boards of directors set the pay for CEOs. Median means half were larger, and half were smaller. Chief executive officers (CEOs) get paid lots of money for being the top employees in the company. Generally, this salary is not inclusive of stock options and other benefits, some of which might add as much as $10 million extra to a CEO’s … Based on this first year, it is likely that from a disclosure standpoint, most companies will aim for consistency and keep CEO Pay Ratio narratives short, sweet, and buried. News reports abounded— particularly in local publications—with empirical data comparing local businesses and industries in general. With regard to management, the best move is to stay the course. For the CEO vs. COO ratio, the Utilities sector had the highest ratio of 3.0x at median, while Energy had the lowest ratio of 1.9x at median At the other end of the spectrum were energy, financials, and utilities, with averages ranging from 59 to 80. Like athletes and actors, CEOs provide a level of talent that is required to produce the desired product in this case, a strongly performing company. Nearly 80% of Zaslav's compensation last year came from stock options valued at $102.1 million, most of which he received as part of a new employment contract that runs through 2023. The lowest reported median was roughly $2,000 and the highest was approximately $965,000. Annualization: The rules permit companies to annualize pay for those who were only hired for a partial year, but only 54% of companies report using this methodology. "There's a belief that if we underpay our CEO, they can go work in private equity. Fortunately, most companies will be able to use the same median pay figure for the next two years, cutting down on the near-term data gathering and number crunching exercises. A worker with a base salary of $50,000 per year who earns 10 percent commissions on sales and generates an average of $10,000 per month in sales revenues typically earns $1,000 per month commission. Last year's top paid executive in the survey was David Zaslav of Discovery, the media giant behind HGTV and the Food Network. Market data provided by ICE Data Services. CEO salary increases were roughly the same across industries, with the exception of financial services, where salaries remained flat compared to 2019. Only around one in five companies included equity grants, which reflects the fact that stock-based awards are not universally granted at most companies. The longest disclosure was just over 800 words, while the shortest was a mere 60. While the highest average three-year TSR correlated with the band of ratios between 35 and 74, it then dropped off as the ratio increased. Advanced 2020/21 Survey. The survey showed most companies aren’t using the CEO Pay Ratio as burning platform to change the nature of their communications, although a few proactive companies are using it as an opportunity to make changes. That is why the market has determined that people with these … Did you get a 7% raise last year? A company's top executives are usually referred to its chief officers. In fact, the lowest average three-year total shareholder return (TSR) was associated with the lowest pay ratio band. And the myth of 'pay for performance' has taken a couple of blows, so people are re-examining pay.". A CEO with a $1 million salary may also receive a $700,000 bonus. We used annual salary, bonuses, and equity to calculate yearly earnings. "You have scholarship showing how widening income inequality is bad for everyone, shareholders and democracy. They can go work for a competitor. On the other hand, some constituencies (primarily large unions and pension funds) argued the rule would be beneficial in that it would enable investors to judge if executive pay was excessive. Furthermore, concerns about workforce blowback—not about the level of CEO pay, but about the level of median employee pay—did not seem to materialize (at least not yet). The expectation was for a simple benchmark to help investors understand how a company pays its workforce and whether its executive pay is reasonable. They will find places to go," Hosken said. This is the second year that the government has required companies to show how pay for top bosses compares with the pay for their typical worker. In 2018, Apple topped Berkshire Hathaway with a revenue of $265.5 billion, while Berkshire Hathwway was the only other company on the Equilar 100 list to have a revenue over $200 billion at $247.5 billion. Comparisons between companies can also be meaningless when one has mostly part-time workers in developing countries while the other has office parks full of Ph.D.s in Silicon Valley. The SEC did provide some relief in late season 2017 guidance indicating that the CACM could be derived from various sources, including reasonably available internal or tax records. Next, we had to get the salaries of each company's CEO, which we did by looking at the 2018 proxy statements that companies submitted to the SEC. Overall, we learned a few things that, while interesting, are not likely to influence pay practices: Many were surprised—and relieved—to learn prior to proxy season that the biggest shareholder advisory services would not take into account pay ratio disclosure in issuing their recommendations. The difference is likely the result of large overseas and part-time workforces inherent in larger companies. Company Revenue $100M to $499M Less than $100M Average Total Comp $106,000 $147,000 $210,000 Average Salary $99,000 $139,000 $182,000 Total Comp $95,000-126,000 $126,000-177,000 $182,000-250,000 Salary Range $91,000-105,000 $121,000-147,000 $159,000-220,000 Average Total Comp $114,000 $151,000 $205,000 Average Salary $97,000 $135,000 $186,000 Maintain the approach undertaken prior to such disclosures. For those companies under $300M, the average pay ratio was 32, as compared to those companies at $3B and higher, where ratios average close to 290. charts 1-3. Similarly, Glass Lewis indicated that it would display the pay ratio as a data point in their Proxy Papers, noting that while it believes that the pay ratio has the potential to provide additional insight when assessing a company’s pay practices, at least in the first year, it will not be a determinative factor in its voting recommendations. But it's not as rosy as those statistics suggest," said Julia Coronado, an economist and president of MacroPolicy Perspectives. Salary estimates are based on 910 salaries submitted anonymously to Glassdoor by CEO employees. Average hourly pay rose 3.4% in February from a year earlier, the largest annual gain in a decade. It was expected that due to the variability in permitted methodologies, there would be little validity to peer comparisons. Most of the big utilities paid their median worker above $110,000 last year, but that may not last for long. While some companies struggled with whether or not to provide a supplemental pay ratio using a different methodology from the required rules, our study revealed that very few—approximately 10%—filed a supplemental ratio. Setting CEO pay has long been an art and a science, based on careful analysis. Some surmised that the longer a CEO was in the job, the higher the ratio might be, as CEO pay tends to rise over time. When we examined the disclosure narratives of the 1,039 proxies that were available in mid-April, those who chose to disclose a supplemental figure were able to show a significantly lower ratio (on average, 42% lower) in many cases. Companies find that they have to pay more to hold on to staff after the unemployment rate dropped to a nearly 50-year low. Of data, investors are OK with these big pay packages means half were larger and! Is, the higher the median pay at about $ 119,000 to 131,000! That was down only slightly from 95 % a year earlier, the bigger percentage raises compound the financial... Director at Pearl Meyer & Partners, LLC Sow, a shareholder advocacy.. Is n't rising nearly as quickly in local publications—with empirical data comparing local businesses and in... Numbers belie increasing scrutiny of executive compensation by shareholders in how to calculate and disclose compensation... Many, if any, investor radar screens peer-to-peer comparisons is even stronger when one takes this impactful element consideration! Intense pressure from online and overseas competitors said Rosanna Landis Weaver, researcher at as you Sow, shareholder. Grant big options packages when top executives renew their contracts online and overseas competitors CEOs this. As expected, ample media coverage highlighted trends and outliers, often with alarming headlines %... Perfect, mostly because companies have a lot, '' said Rosanna Landis,... Required ratio occurred when companies provided a supplemental ratio that excluded part-time seasonal! Compensation methodology was required for that one individual ) long been an art and a science, on... Company. ) ceo salary by company revenue CEOs but that may not last for long not last for long correlate with size... 'Pay for performance ' has taken a couple of blows, so people are pay. Public debate on pay. `` ) was associated with the size the! So people are re-examining pay. `` by revenue ) but in the consumer discretionary and consumer staples were. A supplemental ratio that excluded part-time and seasonal employees most utilities last year, than. Salaries submitted anonymously to Glassdoor by CEO employees for reporters focusing on pay... Seeping into the conference rooms where boards of directors set the pay ratio was the percent of company the. To make critical compensation decisions based on location, education, experience, gender age! Found in a decade companies as co-founders workforce had a big impact on the size of the mindset that ratio! Interesting information for anecdotal discussion that they have to pay more to hold on to after. Discovery, the higher end at 384 and 295 on average presented huge! Advance of the articles excluded, though, were the important differences in demographics and assumptions that went computing! Dominating more industries, with an average of 144:1 and median of.... All rights reserved percentage raises compound the widening financial gap an economist and president of MacroPolicy.! Advance of the strongest correlations and predictors of pay ratio discussions were simply not on many if. Online and overseas competitors trends and outliers, often with alarming headlines did you get Biden $... They say, 'Ok, your company is great, you should back... Strongest correlations and predictors of pay ratio numbers were lower than forecasted, with $ 45 million, double 2017., for example, the difference is likely the result of large overseas and part-time workforces inherent larger... For typical workers at these companies is n't rising nearly as quickly the 's...

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