ExeQuity's statistical analysis of CEO pay ratio data from 372 S&P 500 companies reveals no concrete takeaways for investors seeking to inform their evaluation of executive pay on a comparative basis, and little incentive for companies to dedicate resources to generating the ratio other than as is necessary to comply with the disclosure requirement.
Specifically, the analysis revealed that the CEO pay ratio is driven primarily by the number of company employees - more so than CEO pay or other factors. The memo identifies numerous other relevant positive and inverse correlations, and the degree of correlation - some of which are obvious and some of which are not; however, the fact that the number of employees rises to the top in terms of impact on the size of the overall ratio is particularly notable in view of its absence from the pay ratio calculation or disclosure.
Additional noteworthy findings include:
- Median employee pay is highly inversely correlated with company employee count (i.e., higher employee counts are correlated with lower median employee pay).
- Employee count is strongly and positively correlated with the CEO pay ratio (i.e., higher employee counts equate to higher CEO pay ratios) and higher CEO pay.
- Employee count is strongly positively correlated with company revenues.
- Not surprisingly, CEO pay on a standalone basis is most heavily influenced by company revenue and market cap.
- The data show no evidence of a relationship between the CEO pay ratio and TSR performance.
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Access additional resources on our Pay Ratio page. This post first appeared in this week's Society Alert!
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