The latest analysis by the left-leaning Economic Policy Institute calculates that the CEOs of the largest 350 companies in the US out-earned their employees by a factor of 312:1 last year, the Guardian reported on Thursday:
The rise came after the bosses of America’s largest companies got an average pay rise of 17.6% in 2017, taking home an average of $18.9m in compensation while their employees’ wages stalled, rising just 0.3% over the year. The pay gap has risen dramatically, with some fluctuations, since the 1990s. In 1965 the ratio of CEO to worker pay was 20-to-one; that figure had risen to 58-to-one by in 1989 and peaked in 2000 when CEOs earned 344 times the wage of their average worker. …
The astronomical gap between the remuneration of workers and bosses has been brought into sharper focus by a new financial disclosure rule that forces companies to publish the ratio of CEO to worker pay. Last year, McDonald’s boss Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101-to-one. The average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188-to-one.
In the UK, meanwhile, new research by the CIPD and the High Pay Centre finds that the median CEO-employee pay ratio for FTSE 100 companies stood at 167:1 in 2017, rising from 153:1 the previous year:
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After 12 years at the helm of the multinational food and beverage conglomerate, PepsiCo CEO Indra Nooyi announced on Monday that she would retire from her position in October. Nooyi will be succeeded by Ramon Laguarta, the head of PepsiCo’s Europe and sub-Saharan Africa business, who has been with the company for 22 years. In an interview with the New York Times, the 62-year-old departing CEO said she was stepping down now in part to spend more time with her 86-year-old mother:
“You reach a point where you get tired,” Ms. Nooyi said. “Physically tired. And your family starts to demand more time of you. I’ve reached that point.” Inside PepsiCo, Ms. Nooyi was known for working incredibly long hours — as many as 20 hours a day, often seven days a week. When asked Monday whether she felt that made her a good role model for other women, Ms. Nooyi said, “probably not.”
“But you have to remember when I started working in this corporate world, there were hardly any women in the jobs I was in. At that time, 30 or 40 years ago, expectations for women were unreasonable. We had to produce a better product and do everything much better than the men in order to move ahead,” Ms. Nooyi said.
Nooyi’s departure will leave just 24 women leading S&P 500 companies, according to the non-profit organization Catalyst, though that number will bounce back up to 25 again when Kathy Warden takes up her new post as CEO of Northrop Grumman next January. Other women have stepped down from CEO roles at big companies this year, however, including Denise Morrison of Campbell Soup and Irene Rosenfeld of the snack food maker Mondelez International, so the gender balance of this exclusive club is on a downward trend.
Nooyi has discussed her remarkable path to corporate leadership in a number of interviews, as well as why more women don’t make it to the top. In her view, the dearth of women in the C-suite has less to do with sexist conceptions of what leadership looks like and more to do with a pipeline problem, Vauhini Vara explains at the Atlantic, pointing to an interview she gave on the Freakonomics podcast earlier this year. That’s because the critical point in many professionals’ careers coincides with the time in their lives when they become parents and raise their children—a responsibility that still falls primarily on women:
Amid growing public and investor concern about major British companies potentially overpaying their top executives, the UK government has been kicking around the idea of instituting a pay ratio reporting rule since last year. The government hinted in April that it would propose the regulation soon, and now it is here. The proposal, which Business Secretary Greg Clark is presenting to Parliament today, will require all companies with more than 250 employees to disclose the ratio between the pay of their CEO and their average or median employee, as well as to explain this difference, the BBC reports:
The new rules, as well as introducing the publication of pay ratios, will also require listed companies to show what effect an increase in share prices will have on executive pay, in order to inform shareholders when voting on long-term incentive plans. … Mr Clark said: “Most of the UK’s largest companies get their business practices right, but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.”
The plans were welcomed by the Investment Association – that represents UK investment managers – as well as business lobby group the CBI and think tank the High Pay Centre. Chris Cummings, chief executive of the Investment Association, said investors wanted greater director accountability and more transparency over executive remuneration.
That investors are leading the charge for transparency on executive compensation is unsurprising; activist investors were also key proponents of the pay ratio reporting rule that came into effect in the US earlier this year. Shareholders are voicing greater interest in exercising their “say on pay” prerogatives, particularly after recent scandals in the UK over executives receiving massive bonuses, in some cases without company performance justifying them.
A recent analysis from the Pew Research Center took a closer look at the gender gaps in corporate leadership in the US, focusing on top-level executive positions and the roles from which senior leaders are most commonly promoted to them. Drew DeSilver wrote up the analysis late last month at Pew’s Fact Tank blog:
Women held only about 10% of the top executive positions (defined as chief executive officers, chief financial officers and the next three highest paid executives) at U.S. companies in 2016-17, according to a Pew Research Center analysis of federal securities filings by all companies in the benchmark Standard & Poor’s Composite 1500 stock index. And at the very top of the corporate ladder, just 5.1% of chief executives of S&P 1500 companies were women.
Nor do many women hold executive positions just below the CEO in the corporate hierarchy in terms of pay and position. Only 651 (11.5%) of the nearly 5,700 executives in this category, which includes such positions as chief operating officer (COO) and chief financial officer (CFO), were women. Although this group in general constitutes a significant pool of potential future CEO candidates, the women officers we identified tended to be in positions such as finance or legal that, previous research suggests, are less likely to lead to the CEO’s chair than other, more operations-focused roles.
That women are underrepresented among CEOs and other high-level executive positions is hardly breaking news. The most interesting finding from Pew’s analysis is that three-quarters of the CEOs studied had previously held leadership roles in operations: a function where women are significantly underrepresented. At the same time, the gains women have made in obtaining executive roles in finance, legal, and HR are not putting these women leaders on the CEO track.
This finding builds on other recent research showing that although women’s representation in management has increased dramatically over the past few decades, women are still segregated into leadership roles that are less production-focused, less highly compensated, and less likely to be career stepping stones toward the top of the pyramid. We see the same thing in boardrooms: Even as more women directors are appointed, they remain less likely than their male colleagues to achieve positions of influence on the board.
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The UK government will propose legislation next month that will require companies to publish the ratio between the compensation of their CEO and that of their median employee, the Financial Times reported on Sunday. The rule is expected to come as part of a package of corporate governance reforms meant to address inequality by reining in executive compensation practices widely seen as excessive, which will also require boards of directors to demonstrate that they have acted in the interests of their companies’ employees, customers, and other stakeholders, rather than just the interests of investors. Large companies will also be required to certify compliance with a corporate governance code.
The writing has been on the wall for UK companies for some time now. The government first announced plans to institute a pay ratio reporting requirement last August, as well as to “name and shame” companies whose investors object to their executive pay packages. Recently, several large British companies have faced drubbings from investors and the media over the millions of pounds in bonuses they paid out to their top executives this year
At the beginning of this year, a report from the CIPD and the High Pay Centre revealed that the average FTSE 100 CEO earned £3.45m last year, or 120 times the £28,758 earned by the average British worker. At an average hourly rate of £898 per hour, the top CEOs earned more than the average employee by the third working day of the year, which campaigners quickly dubbed “Fat Cat Thursday.”
Public companies in the US recently began publishing the ratios between the pay of their CEO and that of their median employee in compliance with a regulation adopted by the Securities and Exchange Commission in 2015 that went into effect in the 2017 fiscal year. The regulation, prescribed by the 2010 Dodd-Frank financial reform legislation, had been a potential target for revision, or reversal by the Trump administration, but major institutional investors, particularly activist funds, pressured the SEC not to delay or discard the rule.
As the due date for disclosure approached, executives expressed anxiety about how to communicate these figures to their employees, as well as how the media and shareholders would react. With regard to employees, the concern was not so much that they would learn their CEO was earning an outrageously large salary, but more that half of them were about to learn that they earned less than the median employee and would want to know why.
So far, over 500 companies have published their disclosures, and according to an analysis last month by ISS Analytics, “the numbers have landed all over the map,” from 1.87 for Berkshire Hathaway CEO Warren Buffett, to 2,526 for Aptiv PLC’s Kevin Clark (the median ratio for S&P 500 companies was 166:1). The SEC rule requires companies to compare salary alone, so the ratios don’t account for what CEOs earn from capital gains and dividends.
Because of this limitation, David McCann recently commented at CFO, the rule isn’t as helpful to investors as it’s supposed to be, as it allows some companies to massively undercount how much money their CEOs really make. McCann points to the examples of the private equity firms Apollo Global Management, which reported that its CEO Leon Black was paid $250,888 last year, and Carlyle Group, whose founding co-CEOs David Rubenstein, William Conway, and Daniel D’Aniello each earned $281,315. These numbers are only slightly higher than the pay of the hedge funds’ median employees, but, McCann argues, they are also meaningless:
Bob Iger, the CEO of the Walt Disney Company, received a total compensation of $36.3 million in fiscal year 2017, if all goes well, could earn more than twice that figure this year. The company’s investors, however, have balked at the board’s plan to reward Iger so generously, voting 52–44 percent against a non-binding advisory resolution approving Disney’s executive compensation pan at its annual shareholder meeting, Bloomberg reports.
Three proxy advisors had urged investors to reject the plan, which they said was misaligned with performance, but the board insists that Iger’s compensation package is worth making sure he remains on board through the completion of Disney’s ongoing $52.4 billion deal to purchase 21st Century Fox:
“The board decided it was imperative that Bob Iger remain as chairman and CEO through 2021 to provide the vision and proven leadership required to successfully complete and integrate the largest, most complex acquisition in the company’s history,” Aylwin Lewis, head of the Disney board’s compensation committee, said Thursday.
Bloomberg notes that this is the first time Disney shareholders have pushed back on an executive compensation package since federal regulators began encouraging these “say on pay” votes in the 2010 Dodd-Frank Act. Indeed, such rejections are still a rare occurrence in corporate America generally. Just 1.2 percent of S&P 500 companies had their advisory pay resolutions opposed by a majority of investors in 2017, Reuters reports, citing data from ISS Analytics.