CEOs Make How Much? Pay Ratios Target Income Inequality
New SEC rule compares compensation with that of median worker
Goldman's Blankfein could look better than TJX's Meyrowitz
Retail executives with hefty pay packages and plenty of low-wage employees could end up looking worse than bank leaders when the rule requiring companies to report the gap between their chief executive officer and their median worker goes into effect.
TJX Cos. CEO Carol Meyrowitz and CVS Health Corp.’s Larry Merlo each received reported compensation of more than $28 million last year, topping the CEOs of Goldman Sachs Group Inc. and Morgan Stanley, according to company filings. Those pay packages, among the highest in the retail industry, could look more lopsided when juxtaposed with the paychecks of their workers, which are a fraction of what most bankers earn.
The pay-ratio rule, adopted by the U.S. Securities and Exchange Commission last month, has been championed by supporters as a way of highlighting the growing wage gap between executives and rank-and-file employees. It could increase scrutiny of executives at companies with large U.S.-based workforces earning near the minimum wage, shifting attention away from managers at investment banks and hedge funds.
“Any kind of company with a large seasonal or temporary workforce or college kids with lower pay, like retailers, might be concerned with the ratio,” said Deborah Lifshey, a managing director at Pearl Meyer & Partners, a New York-based executive-compensation consulting firm.
Meyrowitz, Merlo
Under the new rule, the ratio must be calculated in fiscal years beginning on or after Jan. 1, 2017, and will start appearing in proxy filings in 2018.
Meyrowitz’s compensation would be measured against the median of TJX’s 198,000 employees working in more than 3,300 discount department stores including T.J. Maxx and Marshalls. Her reported pay for the fiscal year ended Jan. 31 was $28.7 million, including salary, cash bonus, equity and a change in the value of her pension, a proxy filing shows. The median wage for U.S. department-store workers was $20,530 as of May 2014, according to estimates by the Bureau of Labor Statistics.
TJX Cos. CEO, Carol Meyrowitz.
Merlo at CVS received salary, cash bonus and equity worth $32.4 million in 2014, a filing shows. The Woonsocket, Rhode Island-based company had more than 217,000 employees last year in 7,800 retail pharmacies and 900 walk-in medical clinics, according to its annual report. Workers in health and personal-care stores, a category that includes CVS pharmacies, earned a median annual wage of $27,060 as of May 2014, according to BLS data.
“Consistent with our pay-for-performance philosophy, annual compensation for our CEO and other executives is in line with industry standards and closely reflects our company’s financial success,” Carolyn Castel, a CVS spokeswoman, wrote in an e-mail. Colleen Beauregard, a TJX spokeswoman, didn’t respond to calls and e-mails seeking comment.
Compensation Practices
The ratio could move the spotlight away from executive-pay packages at publicly traded investment banks, private-equity firms and hedge funds, whose compensation practices have been singled out by some as a reason for the housing crash that triggered the Great Recession.
“Why don’t we disclose what the top baseball player makes versus the guy who sells hot dogs in the stadium?”
“Since the financial crisis, their CEO pay has come down, and their median employee pay is generally high,” Alan Johnson, managing director of compensation-consulting firm Johnson Associates, said about financial-services companies. “They don’t have a lot of seasonal workers -- they have a lot of full-time versus part-time workers. Their ratios will not be as high as people expect.”
Goldman Sachs CEO Lloyd Blankfein received compensation last year with a reported value of $22.2 million, less than half of what he was granted in 2007, according to proxy filings. Morgan Stanley’s James Gorman, who has led the bank since 2010, received $23.3 million last year, a filing shows. The median pay for workers in firms that provide investment-banking and brokerage services was $77,640 as of 2014, according to BLS estimates, about three times the median wage at health and personal-care retailers and department stores.
Retail Banks
Banks that provide both consumer and investment-banking services, including Bank of America Corp. and Citigroup Inc., could fall somewhere in the middle. The median worker at retail banks earned $38,290, about half the amount for employees in investment banking and securities brokerage, BLS data show. Bank of America operates about 4,800 financial centers in the U.S., while Citigroup has about 800, according to filings.
Bank of America CEO Brian Moynihan’s reported compensation last year was $15.3 million, while Citigroup’s Michael Corbat received $14.5 million, proxy filings show.
Spokesmen for all four banks declined to comment.
Companies in industries that require highly skilled labor, such as technology and biotechnology, might also have pay ratios that look relatively good, said Paul Platten, a managing director at human resources consulting firm Towers Watson & Co.
‘Purely Populist’
Wage estimates from the BLS are based on a semiannual sampling of 1.2 million U.S. companies over a three-year period. Company-specific figures may deviate from industry median.
The pay ratio, a part of the 2010 Dodd-Frank Act, requires public U.S. companies to disclose their CEO’s total reported compensation -- including salary, bonus and equity awards -- as a multiple of their median worker’s pay, meaning that half of their employees make as much as or more, while the other half is paid the same amount or less. Backers say it will help underscore growing income inequality, while critics have said it aims only to publicly shame CEOs.
“This is just a purely populist, political move and it’s not of benefit to shareholders,” CIT Group Inc. CEO John Thain, whose 2014 reported pay was $8.84 million, said Aug. 6 in a Bloomberg Television interview. “Why don’t we disclose what the top baseball player makes versus the guy who sells hot dogs in the stadium?”
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