Public companies, under new federal rules, are now disclosing their workers’ median annual pay and showing how that number stacks up against what the CEO makes. The data shed some light on employee pay — but it’s a mixed bag with many unknowns.
After years of wrangling over the rules, public companies are now disclosing their workers’ median annual pay and showing how that number stacks up against what the CEO makes.
Federal rules that took effect last year require public companies to express the pay gap between workers and the CEO in the form of a ratio. Fifty of the Pacific Northwest’s public companies have now done so, as have about 72 percent of the public companies nationwide.
The highest pay ratio in the Northwest was reported by online travel company Expedia — 431 to 1. Newly named CEO Mark Okerstrom’s compensation for 2017 was $30.72 million, compared with a median employee pay of $71,696.
The Northwest public company with the highest median employee pay was Tableau Software, at $199,864, according to data compiled by research firm Equilar for The Seattle Times. At the opposite end of the scale was Zumiez, the specialty clothing retailer, with a median employee pay of $6,997.
While Zumiez CEO Richard Brooks earned a relatively paltry $1.7 million last year — 57th among Pacific Northwest CEOs — that low median employee pay put him near the top with the fourth-highest ratio of CEO-to-employee pay.
At Amazon, meanwhile, the median employee pay was $28,446 for the 566,000 full- and part-time workers it employed at the end of 2017. But CEO Jeff Bezos — despite being the world’s richest man with a $150 billion fortune largely in Amazon stock — collected only $1.68 million in compensation from the company last year, resulting in a middling pay ratio of 59 to 1.
After Okerstrom, the next four highest CEO-to-employee pay ratios belonged to John Legere of T-Mobile US, TrueBlue CEO Steven Cooper; Zumiez’s Brooks, and James Lico, CEO of Fortive.
At first glance, the newly disclosed numbers are revealing. On closer examination, though, they grow more complicated. Median employee pay and pay ratios are affected by such things as seasonal and part-time workers, workplace locations, business models and industry practices.
Lynnwood-based Zumiez employs about 8,800 people in North America and Europe — many of them are part-time sales clerks with an average age of 19, according to proxy disclosures. It’s not possible to discern what a full-time sales job at the company pays.
Tableau also included full-time, part-time and temporary workers among its 3,450 employees in the United States and abroad, but gave no details.
Median-pay calculations are supposed to include workers at foreign locations. But employers can omit overseas workers because of foreign privacy laws or when nondomestic employees make up less than 5 percent of the company’s total workforce.
Wrestling with the variables is among the reasons why the entire pay-ratio rule has been dogged by controversy since Congress passed it in 2010, and the dispute shows no signs of letting up.
Advocates contend that the disclosures shed light on pay disparities between CEOs and their employees. Such information, they say, will help citizens, public officials and investors address income inequality and poor business practices.
“The level of income concentration at the top has become extreme,” said Sarah Anderson, program director for global economy at the Institute for Policy Studies, a progressive think tank in Washington, D.C.
Critics dismiss the pay ratio as a flawed and misleading measurement that provides little, if any, meaningful information.
The usefulness of the pay ratio “is pretty near zero,” said Fred Whittlesey, an executive-compensation consultant in Seattle. “It has not added any utility from the investors’ standpoint.”
Some contend the pay ratio could pressure companies into making bad business decisions for the sake of a lower number.
The argument over pay ratios is just the latest installment in the larger debate over income inequality and executive compensation, which continues to far outpace the pay for American workers.
What the boss makes
Public company CEOs in Washington, Oregon and Idaho pulled down an average total pay of $4.1 million in 2017, according to the annual Seattle Times/Equilar CEO Pay study. The average was essentially unchanged from the previous year.
Meanwhile, the average annual wage for all workers in the three states increased 2.24 percent last year to $50,243, according to the Bureau of Labor Statistics.
Average pay for Northwest CEOs has climbed five times faster than for workers since 2010, when the nation was crawling out of the last recession. In the seven years leading up to 2017, the average annual pay for Northwest CEOs increased 79.5 percent, while the average annual wage for all workers in the region increased 15 percent.
The highest-paid public company CEO in the Northwest last year was Expedia’s Okerstrom, with a pay package heavily laden with stock and stock options that vest over time and are tied to future performance targets.
Nationwide, the average annual pay for CEOs with companies in the Standard & Poor’s 500 increased 7.2 percent to $13.31 million, according to an analysis by Equilar for The Associated Press. The S&P 500 consists of large companies, while the 94 public companies in the Northwest come in all sizes.
Congress mandated the pay-ratio and median-pay disclosures in 2010 when it passed the Dodd-Frank Act, a package of financial reforms in response to the financial panic of 2008.
It took another five years for the Securities and Exchange Commission to adopt pay-ratio rules. Along with explanations, those rules filled 294 pages. The regulations took effect in time for the 2017 fiscal year at public companies nationwide.
A dizzying number of factors influence median employee pay and pay ratios.
The presence of many seasonal and part-time workers on a payroll, as is often the case for retailers, tends to reduce median pay. Moving jobs to low-wage countries has the same effect.
Companies that outsource modestly paid work while retaining better-paid employees would increase their median pay. An example would be a company that hires a contract manufacturer in China to make its products, while keeping high-salary engineers in the U.S.
Differences in occupational pay are substantial, and that too affects median pay. The average annual wage for a systems software developer in Washington state is $117,810, federal wage data show. A retail sales clerk, meanwhile, earns an average wage of $33,270.
It should come as no surprise that Northwest tech companies tend to have high median pay, while retailers are clustered near the bottom.
Even the business model plays a role in median pay. TrueBlue, the temporary-staffing company, employed nearly 86,000 people last year. But the vast majority of those people were temporary workers on short-term jobs.
As a result, the Tacoma-based company’s median annual pay was $7,396.
Congress didn’t spell out the purpose of pay ratios, but advocates of the disclosure requirement are happy to fill in the blanks.
At the Institute for Policy Studies, Anderson said the pay ratios inform the public and put pressure on corporate directors, investors and the government to address excessive CEO pay and income inequality.
“A big share of the 1 percent are executives of big companies,” she said.
The institute wants to see pay ratios in the vicinity of 25 to 1 and even 20 to 1 — ranges advocated by the late management consultant Peter Drucker.
He contended that higher ratios make it more difficult for companies to establish teamwork and trust.
“We think that is an ideal that we should be working towards,” Anderson said.
Other organizations that took stands in favor of the pay-ratio rule include the AFL-CIO and the California State Teachers’ Retirement System.
In Oregon, the Portland City Council in 2016 passed a controversial ordinance, now in effect, that levies a surtax on public companies with high pay ratios. Companies with ratios exceeding 100 to 1 pay an additional 10 percent on their city business-license tax, while corporations with ratios exceeding 250 to 1 pay 25 percent more.
The median pay ratio among Northwest public companies last year was 47 to 1.
Portland’s lawmakers made their intentions clear. Their ordinance decried “the spectacular concentration of income and wealth” nationwide and hoped other state and local governments would follow Portland’s example, thereby pressuring shareholders to change their companies’ pay structures.
The new disclosure rule also has plenty of detractors.
Many argue that the pay ratios, in particular, are misleading because the wide variations among companies make it difficult, if not impossible, to compare one corporation’s pay ratio with another, even within the same industry.
Alex Edmans, a professor of finance at the London Business School, is especially concerned that corporate directors will put a higher priority on low pay ratios instead of paying executives according to the company’s overall performance.
“Under ratio disclosure, the worst thing a CEO can do is to be paid a large multiple of the median worker — even if she’s created tons of value,” Edmans said in an email.
He also argued that the pay-ratio rule assumes the size of the corporate pie is fixed — as if, if a company gives a smaller slice of compensation to the CEO, larger slices can be given to other employees.
“But the size of the pie is not fixed,” said Edmans, formerly of The Wharton School at the University of Pennsylvania. “By innovating, the CEO can create substantial firm value.”
Unlike pay ratios, the data on median employee pay are getting a slightly warmer reception.
Analysts, job hunters, investors and others are now getting a glimpse of the pay structure at public companies.
“It’s really the first look at employee pay below the top-five level,” said Charlie Pontrelli, a senior project manager at Equilar.
Earlier reforms aimed at CEO pay have had mixed results, although one rule in particular opened a new line of communication between corporate boards and their investors.
Federal regulations since 2011 have required public companies to let their shareholders vote on executive pay packages at least once every three years. The say-on-pay votes are nonbinding.
Most plans pass with approval rates exceeding 80 percent. Approval rates below 60 percent are the boardroom equivalent of storm clouds.
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Shareholders this year gave several Northwest public companies low marks for their executive pay packages, with one Oregon company getting a failing grade.
In recent months the clouds rolled in for Clearwater Paper, the Spokane-based wood-products company. Only 52.4 percent of the company’s shares were cast in favor of its compensation plan.
At Flir Systems, a thermal-imaging business in Oregon, the company’s executive pay plan passed by 58.8 percent.
Investors gave a failing grade to Digimarc, a barcode-technology company based in Oregon. Stockholders cast only 41.5 percent of their shares in support of Digimarc’s executive-compensation package.
Low say-on-pay votes often follow large executive pay packages, especially when the company is struggling. Digimarc fits that pattern.
After three years of declining sales, Digimarc’s revenue rebounded 15.6 percent to $25.2 million last year, regulatory filings show. But the company continued a four-year trend of widening red ink and reported a net loss of $25.7 million.
Against that backdrop, Digimarc’s board signed a new employment agreement with CEO Bruce Davis that awarded him stock options valued at $2.9 million and a stock grant worth an estimated $1.8 million, according to disclosure reports. The equity awards vest over three years.
Largely because of the stock and option awards, Davis’ total pay shot up 753 percent to $5.4 million in 2017. Among Northwest public company CEOs, it was the largest pay raise in percentage terms last year.
The company disclosed its year-end financial results and executive pay package in February and March. One month later, investors voted their shares and showed how unhappy they were.