There’s a lot of discussion these days about inequality in pay. CEOs tend to receive “golden parachutes” even when they are ousted for poor performance. But just how big is the disparity in pay between the top echelon and the mid-level employee?
It may help to view this question from a historical perspective. In 1965, CEOs made 20 times the salary of an average, non-management employee. By 1995, it was 71.6 times. In 2014, that ratio had ballooned to an average 303 times.1
The disproportion in pay between top leaders and an average worker has become more than just a social issue — its garnered serious attention by the Securities and Exchange Commission (SEC). After all, the more CEOs of publicly traded companies earn, the less return available for shareholders.
To help address this issue, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, which included a provision authorizing the SEC to gather data to assess CEO salaries. Specifically, regulations require issuers to disclose the annual total compensation of the company CEO, the median annual total compensation of all employees (excluding the CEO) and the ratio of these two numbers.2
After significant assessments and feedback about how these requirements should be implemented, the rule will go into effect starting Jan. 1, 2017. The number of employees includes full-time, part-time, seasonal and temporary workers, and an employee is defined as “an individual employed on any date of the registrant’s choosing within the last three months of the registrant’s last completed fiscal year.” 3
According to the SEC, the primary purpose of the rule is to provide shareholders with a company-specific metric to help gauge voting decisions regarding CEO compensation.4
Just how big are executive salaries today compared to their employees? The CEO of CVS Caremark earns 422 times that of the median pay, the Goodyear CEO earns 323 times and the Walt Disney CEO earns 283 times. However, not all company CEOs make the big bucks. Warren Buffett, of Berkshire Hathaway fame, makes only nine times his median employee’s salary. For another comparison, the salary of the U.S. president, at $400,000 a year plus a $50,000 expense account, is only 9.5 times the annual mean wage.5
1Philip Bump. The Washington Post. Jan. 5, 2016. “The CEO of your company has probably already earned your 2016 salary this year.” Accessed Aug. 3, 2016.
2Harvard Law Review. Feb. 10, 2016. “Pay Ratio Disclosure” Accessed Aug. 3, 2016.
5Philip Bump. The Washington Post. Jan. 5, 2016. “The CEO of your company has probably already earned your 2016 salary this year.” Accessed Aug. 3, 2016.
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