Business InsiderMike JeffriesIt’s no secret that CEOs make big money. But it can be truly shocking to see how much more they make than the people that work for them.
Since most companies don’t make that ratio available, Bloomberg calculated it based on the “U.S. government’s industry-specific averages for pay and benefits of rank-and-file workers” and disclosed total CEO compensation by companies for the fiscal year that ended in 2012.
They found eight companies whose CEO made more than 1000 times what an average employee made. Each company was given the opportunity to respond to Bloomberg’s calculations, and some disputed the methodology. Their comments can be seen here.
CEO: Ron Johnson (he was still CEO at the end of the FY 2012)
CEO to employee pay ratio: 1,795 ($53.3 million/$29,688)
Abercrombie & Fitch Co.
CEO: Michael Jeffries
CEO to employee pay ratio: 1,640 ($53.3 million/$29,688)
Simon Property Group
CEO: David Simon
CEO to employee pay ratio: 1,594 ($137.2 million*/$86,003)
*from FY ended 2011
CEO: Larry Ellison
CEO to employee pay ratio: 1,287 ($96.2 million/$74,693)
CEO: Howard Schultz
CEO to employee pay ratio: 1,135 ($28.9 million*/$25,463)
CEO: Leslie Moonves
CEO to employee pay ratio: 1,111 ($69.9 million*/$62,930)
*from FY ended 2011
Ralph Lauren Corp.
CEO: Ralph Lauren
CEO to employee pay ratio: 1,083 ($36.3 million/$33,550)
CEO: Mark Parker
CEO to employee pay ratio: 1,050 ($35.2 million/$33,550)
Some companies argue that the bulk of their CEO compensation is in the form of long-term stock options that give them incentives to perform well and to work for shareholders, and others that it’s necessary to keep top leaders from leaving for a competitor.
Successful CEOs do have an outsize impact, but the numbers and ratios have gotten so large that it’s not only demoralizing to employees, it’s also increasingly hard to make a case to shareholders that justifies these astronomical figures.
Overall pay goes up and down, but the trend is way up as the below chart shows. And if a company is successful, why does so much more go to the CEO, and so little to rank and file employees?
There’s an potential solution that’s been started but not finished. The Dodd-Frank financial reform bill includes a provision requiring companies to disclose this ratio. However, the Securities and Exchange Commission (SEC) hasn’t drawn up the rules that would put it into action.
Companies are actively lobbying against the rule, which shows the power that employee-to-CEO ratios have to put compensation into context.
The first step is to actually pass that rule so the information’s out there. The second one is to beef up the ability of shareholders to context excessive pay. Right now “say on pay” votes are embarrassing, but non-binding.
Maybe in some cases, extraordinary effort and success deserves to be rewarded. If that’s true, then companies should be able to make a convincing argument, and not have to worry about shareholder votes.
Many of those supporting the lobbying effort against disclosure are at the high end for those ratios, which seems to imply that they don’t feel that their argument for the higher discrepancy in pay is all that strong.
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