Dive Brief:
- With the Dodd-Frank Act requiring CEO-to-worker pay ratios from publicly traded companies starting in 2017 as context, a recent analysis of CEO pay within the S&P 500 found that total direct compensation fell from a median of $10.6 million in 2014 to $10.3 million in 2015.
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Mercer says the drop, the first in five years, primarily can be chalked up to lower short-term incentives, which fell from $2 million in 2014 to $1.9 million in 2015 - the smallest payout relative to target since 2011.
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Of course, according to a recent PayScale report, at 168 employers with annual revenue of $1 billion or more, the average ratio of CEO-to-worker pay or more stood at 70-to-1 in 2015. The Economic Policy Institute said that in 1965 the ratio was 20-to-1.
Dive Insight:
Overall, Mercer's analysis found that evidence of the connection between CEO pay and performance was inconsistent at best. For instance, CEOs heading companies in the bottom quartiles of one-year revenue growth or one-year total shareholder return received the lowest bonuses - a strong correlation.
Yet, those same CEOs have the highest salaries on the basis of three-year compound annual growth in revenue and total shareholder return, along with the highest long-term incentives on the basis of three-year compound annual growth in revenue and one-year total shareholder return.
Not that HR has much sway when it comes to CEO compensation, Mercer's view is that compensation committees (typically part of the board of directors) should pay compensation higher than the median for higher than median performance and lower than the median for lower than median performance. Sounds logical.
As for the overall CEO-to-worker pay ratio hubbub, it's a go for next year. But the PayScale survey found that most of the 22,000 employees polled were unconcerned with CEO pay ratios and such. For example, among employees working in publicly traded companies who know their CEO's salary, just 21% thought it was excessive. And even of those who didn't like the wide ratio disparity, close to half (43%) said the data didn't "negatively impact" their view of their employer.
