CEO:Median Employee Salary Pay Ratios

This lesson is based on an article called Rewarding or Hoarding: An Examination of Pay Ratios CEO:Median Employee Salary. This ratio (“Pay Gap Ratio”), as of 2018, is now required to be tracked by all US public companies. 

Facilitating a discussion, I talked about the fact that the average Fortune 500 company has a pay Gap Ratio of 339:1. The big question: is this fair? 

Historically, in 1965, the Ratio was 20:1; there are companies like Berkshire Hathaway with a ratio of 2:1 because Warren Buffet only takes a salary of $200,000. At the top of the range is the Live Nation CEO who makes $70 million to his average employee of $20,000+, a ratio of 2800:1. Seems crazy until you start to peel back the onion and analyze why CEOs can demand such a multiple.

I start the lesson by postulating, what if you knew that your boss made in one day what you made in a year? How would you feel? After you get over the initial shock and outrage and start to analyze why this is the case, reason takes over. I hope.

I would like the students to discuss this issue with you and write some bullet points in which they talk about their opinions backed by reasons for why this is fair or unfair. 

Here are some additional questions I posed to them:

1. What do you think of the pay gap at US companies? Is it good for companies or just their CEOs? What does it do to corporate culture and employee morale?

2. Are you likely to focus your interest on industries/companies with high median salaries, small CEO: median ratios. 

3. Do you think the US system of compensation needs an overhaul, and if so, how would you recommend our legislators reach this objective?

4. What about the gender pay gap?

Here are links to the article that I copied for each student. 

https://ellison.house.gov/sites/ellison.house.gov/files/Rewarding%20Or%20Hoarding%20Full%20Report.pdf

Why is it fair or not fair for Chief Executive Officers (CEOs) to make an average of 339 times the median salary of his or her employees?

FAIR

some examples:

• CEO has more education
• CEO is responsible for entire company
• CEO' is able to create shareholder value of tens of millions if not billions of dollars
• CEOs risk so much more than the average employee 
• CEOs can create jobs for tens of thousands of workers.
• Fair doesn't mean equal

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NOT FAIR

• Workers do not make a living wage
• CEOs are taking too much of the pie at the expense of workers
• The 1965 ratio of 20:1 was much more just
• CEO pay demotivates the average worker since the worker has to work 45 years times 11 people to make what the CEO makes in one year
• CEOs can't add that much more value than the average worker.

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I gave the data on the CEO salaries and the median worker salaries for the top 225 companies in the Fortune 500. They can use a calculator to divide the CEO salary by the median worker salary and record the ratio as _________:1. Look at different companies in a wide range of industries (for example, technology like Texas Instruments, fast food like McDonalds, consumer products like Walmart and Amazon, etc.).