The 2018 proxy season will indeed be remembered for the buzz created by the new CEO pay ratio disclosure requirement. The disclosure is one of many regulations stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and requires U.S. public companies to track and disclose the ratio between compensation for a median employee and the CEO.
A recent Equilar study uncovered CEO pay ratio results and disclosure trends from this past proxy season. The study included data from Russell 3000 companies that filed their proxies by May 4, 2018. Overall, the median CEO pay ratio was 70:1 with median employee compensation at $64,024. The highest CEO pay ratio was 5,908:1, while the lowest was zero.
When breaking down the ratio by sector, median ratios were the highest in consumer goods and services at 142:1 and 127:1, respectively. Interestingly, ratios increased at almost all percentiles—25th, median and 75th—as revenue grew.
With the inaugural year of the CEO pay ratio disclosure requirement completed, it is difficult to tell whether or not the ratio will affect how companies examine and evaluate CEO compensation plans. The ratio garnered a fair amount of attention from the media, but the first impression from companies is still uncertain. Regardless of the impact of the CEO pay ratio, companies should plan to construct and demonstrate a clear presentation of the ratio in the coming years, particularly to satisfy any shareholder concerns.