When the Executive Pay Ratio is in the news, you can bet lavish executive pay is the point. It certainly is for the recent "Bloomberg Opinion" that "CEO Pay Is an Underrated Risk to Stocks."
But this article, surprisingly, also addresses median employee pay levels. Let's face it, we all try to forget median pay from one year to the next. It's not because it's hard to remember, it's more likely the crummy associations with 1) what it takes to calculate it, and 2) how it influences the Pay Ratio. But what if median pay could be made useful as an analytic? Has anyone tried that yet?
I mention it because the Bloomberg article has a great graphic illustrating that, "The difference between CEO and worker pay was once a fraction of what it is today."
"The CEO-to-worker pay ratio was 20-1 in 1965 . . . The ratio gradually swelled during the three decades that followed, climbing to 342.5 to 1 by 2000. With few exceptions, it has hovered near 300 since then."
The thing is, we know why the executive portion of the ratio has become so high, but I think we have very limited insight into why the median employee measure is at present levels. We know that there is a technical reason -- it includes part-time employees which skews the number considerably in certain industries like retail. We know that increase practices since the Recession have led to relatively lower salaries. But surely there are additional reasons? Insights that would be valuable to your compensation strategy development.
For example, since the seventies, organizations have been downsized, resized, reorganized and "technologized." How has your company evolved to the organization structure you have now? What are the stages of your company's evolution over the last 30 years or so? In each stage, who would have qualified as the median employee, and what does this say about the type of organization structure your company had at that time. Is there a clear alignment between talent strategy and pay in each of the organizational structures that you identify? What has your company learned over the years?
Then there's today's issues. If part-time employees take up such a large percentage of your workforce, what does that mean about the definition of the "most valuable players" in your organization? Do a large number of employees have a greater direct impact on the bottom line than a few strategically placed high potentials? If you don't have a large number of part-timers, who are your median employees, and how have your pay policies affected them? Step back and consider whether the picture you've painted is optimal, given current business operations and results. Consider other ways the "median employee" can be used as an analytic for your company in the coming years.
What about the future? In three years, based on your projected talent strategy, what title should qualify as median employee? Is it the same job title as today? How will your pay strategies affect this evolution?
I'm guessing that this type of analysis would offer insights that would be valuable for both strategy and communications. Strategy, in that there are bound to be insights that lead to practical adjustments. Communications, in that there are bound to be details that can be helpful in explaining pay and business priorities, and how they have evolved/are evolving.
[BTW, the Bloomberg article includes a link to a really interesting interactive chart of Pay Ratios by industry, from low to high of 1,000 of (pretty much) the largest U.S. public companies.]
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
An important step in comparing salaries needs to be the full-time equalization. This solves the part-timers' issue. Regarding the pay gap between the CEO and the median employee - it is about the distribution of wealth on the one hand, but also on salary rates being an economic category and as such being subject to supply and demand, I think.
Posted by: Petr Vrabec | 02/13/2019 at 02:56 AM