In 2021, CEOs across the Equilar 500—the largest U.S. companies by revenue—enjoyed big pay bumps. Compensation for chief executives at Equilar 500 companies jumped to $14.2 million at the median, an 18.9% increase from the previous year. While CEO pay has restored to levels far above the pre-pandemic era, median employee pay has increased at a much lower rate.
With Equilar 500 CEO compensation seeing a large spike in 2021, the CEO Pay Ratio—the ratio of CEO-to-median-worker compensation— followed suit. The median Equilar 500 CEO Pay Ratio increased by nearly 10% from 190:1 in 2020 to 208:1 in 2021, the highest increase over the last four years (Figure 1).
Currently, the CEO Pay Ratio is not widely influential when investors hand out a negative Say on Pay vote. However, Equilar 500 companies with low approval ratings are also more likely to have higher CEO Pay Ratios, and companies with lower CEO Pay Ratios are more inclined to garner higher approval ratings (Figure 2). Each year since 2020, companies that failed Say on Pay—any mark below 50% approval—had the highest median CEO Pay Ratio. Meanwhile, companies that received 95% approval or higher on Say on Pay had the lowest median CEO Pay Ratio.
The CEO Pay Ratio is indeed continuing to capture the attention of the public and media, particularly following the aftermath of the COVID-19 pandemic and heightened attention around human capital management (HCM) issues. Nevertheless, while the ratio may not directly play a role in Say on Pay votes, the interest of the median employee is of concern in this new post-pandemic era, and companies should prepare to at least defend excessively high ratios during engagement meetings should the topic arise.