Second Look at CEO Pay Ratio

April 12, 2018

We’ve updated our March 23 Pay Insights blog with the latest CEO pay ratio results; read below to see what’s changed. For the first look, click here.

It seems like more than a dog’s age ago (way back in 2015) that the Securities and Exchange Commission (SEC) adopted the CEO pay disclosure rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, effective with the financial year starting on or after January 1, 2017. The first proxies to include CEO pay ratio disclosures are just now being released. Using Aon’s Corporate and Governance Pro’s (CG Pro) new CEO Pay Ratio report, we took a look at what’s being reported at a select sample of 531 companies, which span several industries. A summary of our findings is below.


In case you aren’t up to speed on this issue, the intent of the pay ratio disclosure rule is to provide shareholders (and other stakeholders) with some sense of the relationship between CEO compensation and the typical employee, and maybe a little bit of public shame. Public companies are required to report the ratio of CEO annual total compensation to the annual total compensation of the median employee. While governance organizations have generally said they will not make recommendations based on the pay ratio, we still expect media reporting on the subject, especially in the first year of these disclosures.

Our Preliminary Findings

Among companies in the CG Pro database so far this year, the median CEO pay ratio is 114:1. Not surprisingly, companies with higher revenues tend to also have higher CEO pay ratios. CEO pay is typically highly-correlated with the size of the organization while factors other than size drive pay levels for non-executive employees (e.g., the median employee). In addition, larger companies are more likely to have foreign operations and roles in lower-cost locations.

CEO Pay Ratio By Company Size


Aside from size factors, we also examined pay ratio by industry based on GICS codes. The industries with the highest ratios are Healthcare, Consumer Services, Automobiles and Retailing. Industries with smaller ratios tend to be ones that are more likely to have U.S.-centric workforces and higher median pay.


 Source: Aon CGPro Database 

Alternative Disclosures and Methodologies

Disclosure rules allow companies to provide an alternative ratio in addition to the required pay ratio. Fifty-four companies (10% of our sample size) chose to provide an alternative ratio. The median alternative ratio was 25% lower than the required ratio. Most often, companies excluded one-time equity awards from the calculations. Interestingly, 13 of the companies’ providing an alternative ratio reported a higher figure than the required ratio.

Meanwhile, the methodology for determining the median employee is determined by each company, either by using the actual median employee or statistical sampling. In addition, companies needed to determine what the employee data set should be. Issuers are required to include both U.S. and non-U.S. full-time, part-time, temporary and seasonal workers. Non-U.S. employees are excluded only if they are from countries where privacy laws may prevent the company from complying with the rules, or in cases where non-U.S. workers make up 5% or less of the total employee population (the de minimus exclusion). Companies are also able to apply a cost-of-living adjustment to the actual total compensation of the median employee.

Among the companies in this analysis, only 22 (or 4%) reported using statistical sampling and only eight (2%) reported using a cost of living adjustment (four of these companies also reported higher than required alternative ratios). At this point companies do not appear to be seeing a benefit from the extra work required to use these two adjustments.

What’s Next

We used Aon’s Compensation and Governance Pro tool to conduct this analysis, and you can too. CG Pro provides proxy information for the Russell 3000 using a simple to operate self-service tool. If you have any questions, or would like to know how Aon and CG Pro can help your organization navigate the complexities of corporate governance issues, please contact us.

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