Good morning. David Meyer here, filling in for Alan from Berlin.
Last year was the first in which publicly traded companies in the U.S. were obliged to disclose their CEO pay ratios. The numbers are in and, while quite a few CEOs were shown to be earning hundreds or thousands of times what their companies’ median employees earn—per Equilar, the median CEO pay ratio was 254:1—one chief executive’s ratio stuck out like a sore thumb.
Step up, Elon Musk.
In 2018, the Tesla chief was paid an astonishing 40,668 times more than the earnings of the median Tesla worker. In theory, at least.
The reality is somewhat more complex, as Tesla had to report a comparison of Musk’s $2.28 billion in stock options with that median worker’s $56,163 pay for the year. Musk only gets to claim that cash if the company hits high valuation and operational targets—if Tesla misses all the targets, he gets zilch.
Musk’s case is an outlier, but there is a trend of some of the highest ratios being the result of similar factors. For example, as reported by the Financial Times, Oracle co-CEOs Safra Catz and Mark Hurd took home $108 million each in 2018, creating a ratio of 1,205:1. But that includes five years of stock option grants, without which the ratio would have been 282:1.
Either way, though, these ratios are high and they’re maybe getting higher—in 2017, when only two-thirds of companies whose filings were surveyed by Equilar reported their CEO pay ratio, the median stood at 235:1.
Unions and Democratic presidential candidates will no doubt seize on the disparities as evidence of widening inequality. That’s not hard to do when, for example, Whirlpool CEO Marc Bitzer earns $11.8 million in a year and the median Whirlpool employee gets $20,485. That’s a 578:1 ratio, and remember that the median employee is by definition in the middle of the pack, and not one of the company’s lower-paid workers.
Whatever your view of how these figures are calculated and whether their forced disclosure is fair or not, they are politically toxic in this day and age.
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