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CEO-to-Employee Pay Ratios Lower Than Expected, New Mercer Survey Finds

MMC | September 28, 2016

CEO-to-Employee Pay Ratios Lower Than Expected, New Mercer Survey Finds

Mercer’s just-completed CEO Pay Ratio Survey found CEO-to-median-employee pay ratios are expected to be less than 200:1 at the majority of surveyed companies that have estimated a ratio. These estimates are lower than the 300:1 ratios frequently publicized. Not surprisingly, the survey of more than 100 companies shows that industries with more professional staff have lower ratios than industries with more part-time, temporary, and less-skilled employees.

“While the ratio may still seem significant to some, it is not as high as many might think,” said Gregg Passin, Senior Partner and North America Leader of Mercer’s Executive Rewards business. “More importantly, it confirms what we expected – ratios differ by industry, with the highest ratios in the retail/wholesale and consumer goods sectors and the lowest ratios in the banking/financial services and technology sectors. Supporters of pay ratio disclosure that hope it will pressure companies to reduce CEO pay may be disappointed to learn that banking/financial services companies, often criticized for excessive pay, have lower ratios than most other industries.”

Mercer conducted the survey to gauge companies’ level of readiness for the SEC’s CEO pay ratio disclosure rule. All public companies will have to disclose the ratio of the CEO’s total pay to the median total pay of all US and non-US employees, beginning in 2018. While the 2018 effective date may seem a long way off, according to Mercer’s survey, three-quarters of companies have already selected or are considering one or more calculation methods for determining the median employee.

“Compliance requires advance planning and can be challenging, particularly for companies lacking robust payroll or HRIS systems or operating in many countries,” said Mr. Passin. “Companies will also need to assess the disclosure’s impact on various stakeholders, especially employees – half of whom will learn that their pay falls in the bottom half at their company.”

For companies wanting to know how their ratio stacks up against other companies, key findings from the survey show:

A majority (60%) of survey respondents have estimated their ratio, with more than half reporting ratios under 200:1 and only 20% reporting ratios of more than 400:1.
Approximately one-third (32%) are considering statistical sampling as a method to identify the median employee.
More than 80% of companies report their data systems are ready or, with some manual effort, adequate to identify the median employee.

“Companies that have not yet started to consider methodologies should not delay. The regulatory flexibility for identifying the median employee provides both challenges and opportunities that can take time to explore,” said Mr. Passin.

Mercer’s survey, which was conducted in August, consists of 117 companies across 12 industries, with average revenues of $12 billion. For a summary of the survey results, click here.

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE:MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 60,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.