The Chasm Between CEO and Median Worker Pay Widens

TMI is a running blog that follows the money and tracks key economic stories.

Industries that pay their workers particularly low wages appear to have a particularly huge gap between CEO pay and employee pay, according to a new analysis of government filings.

2018 is the first year that a new Securities and Exchange Commission rule forces publicly traded companies to disclose the ratio between CEO pay and the pay for median workers. Executive compensation consultancy Farient Advisors finds that as of mid-August, 418 of the companies in the S&P 500 have released their ratios, and the median corporation among that group pays its CEO 157.5 times the amount it pays its average worker.

That median, though, obscures far bigger gaps in specific industries — and according to Farient, there’s a clear “inverse relationship” at play: “Sectors with the lowest median pay have the highest ratios” between CEO pay and worker pay.

“In the S&P 500, the Consumer Discretionary sector has the highest median ratio at 453.5:1 and the lowest median employee pay at $26,095,” the firm finds. “The Consumer Discretionary sector includes McDonald’s, Mattel and Target, among others… Consumer Staples ranks number 2 in median pay ratio and includes the second lowest employee pay group among sectors.”

Overall, a separate study from the Economic Policy Institute found that in 2017 “average compensation for CEOs of the top 350 publicly traded firms increased 17.6 percent to $18.9 million” and that for those firms, “the ratio of CEO-to-worker compensation rose to 312-to-1—far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989.”

The Farient data suggest the widening gap is being fueled by specific sectors — and the iconic companies in those sectors have made deliberate choices that could be exacerbating the situation. For instance, McDonald’s, Mattel and Target in recent years have all plowed resources into stock buybacks, which can enrich shareholders and CEOs, but deprive companies of resources to increase wages. These sectors have also been hostile to unionization, which can increase wages through collective bargaining.

The new SEC data offer a rare snapshot of the cumulative effect, illustrating how in low wage industries, the rich get especially rich, at the expense of the employees.

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