Boss makes how much? Companies reveal CEO-to-worker pay ratio

Public companies for the first time this year must disclose how much more they pay their chief executive than their median employee, a rule born in the wake of the financial crisis and amid a social backlash against rising income inequality.

Many of Illinois’ largest companies debuted their CEO-to-worker pay ratios in recent regulatory filings, and the gaps, clearly, are massive.

What’s less clear is what to make of the new information.

At Northbrook-based Allstate, CEO Tom Wilson’s $18.76 million compensation last year was 230 times higher than the $81,573 earned by the insurance company’s median employee.

At Deerfield-based Mondelez, former CEO Irene Rosenfeld, who stepped down in November, earned 402 times more than the snack-maker’s median worker — $17.11 million versus $42,893.

And at McDonald’s, CEO Steve Easterbrook’s $21.76 million pay package was 3,101 times the $7,017 paid to the fast-food giant’s median employee, which the company defines as a part-time hourly restaurant crew member in Poland, Ill.

The leeway companies were given by the Securities and Exchange Commission to compute their ratios makes it difficult to draw any meaningful conclusions, critics say, and huge CEO pay packages — which include salary, bonus, stock options, rise in pension value and other incentives — are hardly news. But the disclosure of median employee pay, a less commonly reported figure, could prove significant for employees renegotiating their own pay or for job candidates evaluating potential employers.

And for many people who track executive pay, what will be most interesting is to see how the ratios change over time.

“Are they giving themselves a raise while the rest of the workforce is hurting?” said Rob DuBoff, director of corporate research at Just Capital, a nonprofit research organization that ranks corporations based on what its surveys show Americans care about most.

The ratio reporting requirement, mandated by Congress in the 2010 Dodd-Frank Act, is intended to give shareholders more information for managing executive compensation. There is no target ratio, and the ratios vary vastly depending on company size, industry and workforce structure.

Equilar, a compensation research company, has been tracking company disclosures across the Russell 3000 index. As of mid-April, the median pay ratio reported was 72:1, according to Equilar. The ratios range from 5,908:1 at Weight Watchers, whose new CEO was awarded several one-time awards last year as part of her recruitment, to 0.1:1 at Texas-based Energy Transfer Partners, whose CEO chose to take a $1 annual salary and forgo bonus and equity incentives, so his compensation consisted of health benefits.

Companies can exclude up to 5 percent of their non-U.S. workforce but don’t have to, some include health benefits in the compensation calculation but others don’t, and making cost-of-living adjustments for geographic differences is optional.

In addition, the salaries of parttime, temporary or seasonal employees lower median employee pay, and companies that rely heavily on those workers tend to have a wider CEO-toemployee pay gap as a result.

“What is it going to tell people? On balance, very little,” said Donald Kalfen, partner at Lake Forest-based Meridian Compensation Partners, which advises boards and senior management on executive compensation issues.