Chief executives of big American companies earn on average 204 times the median pay of their employees, according to a new survey, which shows that at four companies the ratio is more than 1,000 to one.
The survey, by the career website Glassdoor, comes amid a fierce public debate on income and wealth inequality and follows new federal rules that will require companies to disclose their CEO/worker pay ratio by 2017.
The survey, which included only S&P 500 companies, found that the average CEO pay was $13.8 million a year, while the average median worker pay was $77,800, giving an average pay ratio of 204.
The company with the highest ratio of CEO pay to median worker pay is Discovery Communications, the media and entertainment group, where CEO David M Zaslav earned $156 million in 2014 while median worker pay, based on Glassdoor salary reports, was $80,000, for a pay ratio of 1,951.
The second highest is at the restaurant chain Chipotle, where CEO Steve Ells earned $28.9 million while median worker pay was $19,000, for a pay ratio of 1,522.
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The drug store chain CVS had a CEO/worker pay ratio of 1,192, while Wal-Mart came in at 1,133 and Target at 939.
The lowest CEO pay ratio was zero at accessories company Fossil, whose CEO Kosta Kartsotis reported $0 compensation in 2014. As noted in Fossil’s SEC filing: “Mr Kartsotis again refused all forms of compensation for fiscal 2014. Mr. Kartsotis is one of the initial investors in our company and expressed his belief that his primary compensation is met by continuing to drive stock price growth.”
The second and third lowest CEO pay ratios (also effectively zero) were at companies whose 2014 chief executive officers reported $1 salaries: Google (Larry Page) and Kinder Morgan (Richard D. Kinder). Rounding out the five with the lowest pay ratios are Urban Outfitters (Richard A. Hayne, pay ratio of 3), and Facebook (Mark Zuckerberg, pay ratio of 4).
Andrew Chamberlain, chief economist at Glassdoor, said that chief executive pay should reflect the value that the individual added to the company each year. Too often however, inertia and deference among other board members meant that CEO’s were not penalised during bad years.
“If a company persists in paying a chief executive more than the value they create for the firm, it will be a value losing proposition. Those CEOs should be paid less or replaced,” he said.
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He acknowledged that chief executive pay could be highly volatile from year to year and added that at big retailers such as Wal-Mart, CVS and Target , the high CEO/worker pay ratio was often more a result of the fact that the companies had very large numbers of low paid workers than because the CEO was overpaid.
Dr Chamberlain said that the new Securities and Exchange Commission rule require a disclosure on CEO/worker pay would shed new light on the issue. However, he was sceptical as to whether it would affect worker morale. Research showed no link between employee satisfaction and the pay ratio. “It doesn’t seem that employees are aware of what the chief executive earns,” he said.