CEO–Employee Pay Gaps Widen in US and UK

CEO–Employee Pay Gaps Widen in US and UK

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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Alphabet Shareholders Vote Down Proposal to Tie Executive Pay to Diversity

Alphabet Shareholders Vote Down Proposal to Tie Executive Pay to Diversity

Investors in Alphabet Inc., the parent company of Google, voted down all proposed resolutions at on Wednesday’s shareholder meeting, including one that would have made the compensation of senior executives partly dependent on the company making progress toward specific diversity and inclusion goals. The proposal was opposed by Alphabet management, Reuters reported on Wednesday, which sank the resolution as insiders have effective voting control of the company. Google co-founders Larry Page and Sergey Brin hold supervoting shares in Alphabet that enable them to defeat any shareholder resolution they don’t approve of. Google insists that its existing commitments to diversity are sufficient:

Eileen Naughton, who leads Google’s HR operations, said the company remains committed to an internal goal to reach “market supply” representation of women and minorities by 2020, which could help bring hiring in line with the diversity of the candidate pool.

Another resolution aimed at getting Google to provide investors more information about its efforts to moderate user-generated content on the platforms it owns, including YouTube, was also voted down on Wednesday.

The proposal related to diversity was put forward by the activist investment fund Zevin Asset Management and supported by a group of Google employees who have expressed concern about how committed the company really is to being an inclusive environment for everyone who works there. One of those employees, engineer Irene Knapp, addressed Wednesday’s shareholder meeting with a statement that stressed the urgency of addressing ongoing problems in Google’s culture:

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Google Investors and Employees Propose Tying Executive Compensation to Diversity Goals

Google Investors and Employees Propose Tying Executive Compensation to Diversity Goals

A group of Google employees has teamed up with activist investors in the tech giant’s parent company, Alphabet, to push a proposal at a June 6 shareholder meeting that would make executive compensation at Google contingent on the company meeting certain diversity goals, Kate Conger reported at Gizmodo last week. Alphabet opposes the resolution and has recommended a vote against it:

Google and Alphabet have maintained that they aren’t experiencing a diversity crisis but are rather dealing with complaints from a few disgruntled employees. A Google spokesperson declined to comment on the shareholder proposals, but the company also argued in its proxy statement that the proposal wouldn’t have any meaningful impact, even if it were approved, because Alphabet CEO Larry Page receives a base salary of only $1 per year and is not compensated based on performance.

But Zevin Asset Management, the investment firm that drafted the proposal, says that it’s intended to apply to all of the company’s executives, not just Page. “Anyone whose compensation is reviewed in the proxy, people like Sundar [Pichai, Google’s CEO], we are thinking about them, too,” said Pat Miguel Tomaino, the director of socially responsible investing at Zevin. “If this proposal gets a high vote and the board moves to implement it, we expect they would implement it for the people for whom it’s relevant.” In focusing its response solely on Page’s compensation, Alphabet is avoiding the bigger issues at stake, Tomaino added.

Although Google maintains that it is a leader in diversity and inclusion among Silicon Valley tech companies, it has faced scrutiny in the past year over its slow progress toward diversity goals and allegations of discriminating against women in pay and promotions. A pay equity audit demanded by another activist investor, Arjuna Capital, failed to satisfy Arjuna’s questions and compel it to withdraw a resolution demanding that the company report on the risks it faces from emerging public policies on gender pay equity.

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UK to Introduce Pay Ratio Disclosure Law in May

UK to Introduce Pay Ratio Disclosure Law in May

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.”

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Will Pay Ratio Disclosures Tell Investors What They Want to Know?

Will Pay Ratio Disclosures Tell Investors What They Want to Know?

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:

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UK Companies Face Investor Pressure Over Executive Bonuses

UK Companies Face Investor Pressure Over Executive Bonuses

Several large enterprises in the UK have been taking heat from investors over the sizes of the bonuses they are paying out to their top-level executives. At Unilever, Sky News reported on Saturday, investors are expected to raise objections at its annual shareholder meeting next month over the millions of pounds in bonuses it paid out this year to its CEO and CFO:

Sky News has learnt that the advisory service run by the Investment Association (IA)‎, the fund managers’ body, has issued a “red-top” warning in relation to Unilever’s remuneration report. … ‎City sources said on Friday that the IA “red-top” related to the decision by Unilever’s remuneration committee to award annual bonuses worth €2.3m to Paul Polman, its chief executive, and €1.1m to Graeme Pitkethly, the chief financial officer.

The bonuses were the maximum possible under the company’s existing remuneration ‎policy, which is being overhauled this year. The IVIS service is understood to have been angered by that decision because Unilever’s underlying sales growth for last year fell short of the target figure by a small margin.

Unilever is not the only company where investors are balking at big payouts to executives. The Financial Times’ Attracta Mooney casts this as a broader trend, pointing also to the investment company Melrose, which specializes in acquisitions and turnarounds of underperforming companies, which has been subject to criticism this week after announcing that four of its executives would earn total pay packages of over £42 million for 2017. The construction company Persimmon is also taking heat for its plans to pay CEO Jeff Fairburn a bonus of £110 million as part of a bonus scheme described as among the country’s most generous (or, by critics, as “obscene”).

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Verizon Shareholders Want to Tie Executive Pay to Cybersecurity

Verizon Shareholders Want to Tie Executive Pay to Cybersecurity

Trillium Asset Management, an activist investment fund focused on social and environmental responsibility, has filed a shareholder proposal at Verizon that would tie executive compensation at the telecommunications giant to its performance against cybersecurity and data privacy goals:

Verizon shareholders request the appropriate board committee(s) publish a report (at reasonable expense, within a reasonable time, and omitting confidential or propriety information) assessing the feasibility of integrating cyber security and data privacy metrics into the performance measures of senior executives under the company’s compensation incentive plans. …

Currently, Verizon links senior executive compensation to diversity metrics and carbon intensity metrics. Cyber security and data privacy are vitally important issues for Verizon and should be integrated as appropriate into senior executive compensation as we believe it would incentivize leadership to reduce needless risk, enhance financial performance, and increase accountability.

The proposal points to several data breaches in the company’s recent history, including one that affected 1.5 million customers in 2016 and another affecting 6 million last year. It also expresses concern about the growing number of users whose data the company is now responsible for safeguarding following its acquisition of Yahoo and AOL, which will expand Verizon’s digital advertising reach to 2 billion people.

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