Ever wonder what your company's CEO earns? Among public companies with at least $1 billion in annual revenue, CEOs make an average of 70 times more in total cash compensation than the median salary of their employees, according to a new study by PayScale and Equilar. Some CEOs earn as much as 300 times their median employee salary, found the data.
The total compensation studied for this research included base annual salary, bonuses, profit sharing, tips, commissions and any other forms of cash earnings. It did not take into account stock compensation, cash value of retirement benefits and value of other noncash benefits, such as health care.
Of the 168 companies examined, CVS Health Corp. had the largest CEO-to-worker pay ratio. The CEO's total cash compensation of $12.1 million was 434 times the median CVS employee compensation of $27,900. CBS, The Walt Disney Company, TJX Cos., Twenty-First Century Fox and f L Brands all had CEO-to-worker pay ratios of more than 300-to-1. Only two of the companies studied — ServiceNow and Oracle — had ratios smaller than 10-to-1. [See Related Story: How Is CEO Compensation Determined? It's Complicated]
Do employees care about their CEO's pay?
Though the pay difference can be staggering, many employees didn't feel it was out of line. Overall, 55 percent of workers said they didn't know how much their CEO made. However, of those who did, nearly 80 percent said their CEO's compensation was appropriate. Just 43 percent of those who disapproved of their CEO's salary said it negatively impacted their opinion of their company.
The research shows that the higher on the corporate ladder someone is, the more likely they were to know what their company's CEO makes and the more likely they were to approve of their salary. Specifically, 59 percent of employees classified as being individual contributors (i.e., nonmanaging employees) didn't know their CEOs' salaries, compared with 52 percent of managers and supervisors, 45 percent of directors and 33 percent of executives. The study also found that the higher up an employee is, the more likely they are to approve of the CEO's compensation.
Katie Bardaro, vice president of data analytics and lead economist for PayScale, said the study raises questions about what would happen if everyone knew their CEO's compensation.
"We know employees at higher levels in their companies have more knowledge about, and more readily approve of, CEO compensation than employees at lower levels," Bardaro said in a statement. "As people move out of the 'don’t know' category, are they more likely to move into 'approve' or 'disapprove?'"
Starting next year, employees at all public companies will have a clearer understanding of how their CEOs' compensation compares to their own: In 2017, public companies will have to disclose the ratio of their CEOs' compensation to the median compensation of their employees.
"The CEO pay ratio is going to affect every public company at all levels of their organizations," said Dan Marcec, director of content at Equilar. "PayScale's survey suggests that if companies are proactive in communicating executive pay to their employees in advance of this information becoming public, they have the opportunity to have a more productive conversation internally about what will likely turn out to be a controversial topic."
Mike Metzger, CEO of PayScale, said he thinks the principle of the law is valid because, in general, transparency is good.
"The awkward thing about it is it's an asymmetrical situation; we wouldn't disclose the salary of any other individual," Metzger said. "But when you're talking about CEOs, I think it's reasonable to say, 'Hey, that just comes with the job.'"
The study was based on CEO compensation data provided by Equilar, a provider of corporate governance solutions, worker compensation data from PayScale, and surveys of more than 22,000 professionals.