As information comes pouring in under the pay ratio disclosure rule, it’s interesting to see compensation comparisons between the CEOs and median employees at various public companies.
This is the first year that companies subject to the disclosure rule are reporting the ratios, which are calculated by dividing the CEO’s compensation by the pay of the median employee, meaning half of the company’s workers make more and half make less.
Bloomberg LP has made it easy to follow the pay disclosures by offering a tracker that shows the reported figures. The data can be searched by company name or categorized by industry, allowing users to access the pay ratio information in multiple ways.
For the purposes of this blog, we are homing in on the beverage industry, where companies such as Coca-Cola, PepsiCo, and Dr. Pepper Snapple Group released their ratios before this blog was posted.
Bloomberg Law spoke with executive compensation consultants Shaun Bisman, principal at Compensation Advisory Partners, LLC, and Stephen Charlebois, principal at Semler Brossy Consulting Group, LLC to gain some insight on these amounts when interpreting the pay ratio disclosures.
Molson Coors Reports Median Over $72,000
In the chart below listing five beverage industry giants, one of the eye-popping figures is the compensation amount for the median employee at Molson Coors Brewing Co. While there’s a fair amount of uniformity among the four non-alcoholic beverage companies, with median employee pay falling between $42,000 and $49,000, the compensation reported for the Molson Coors median employee was significantly higher at $72,661.
|Beverage Company||Pay Ratio||CEO to Median Employee|
|Molson Coors Brewing Co.||119:1||$8.7M:$72,661|
|Dr. Pepper Snapple Group, Inc.||209:1||$8.9M:$42,689|
|The Coca-Cola Co.||230:1||$10.9M:$47,312|
|Monster Beverage Corp.||256:1||$12.5M:$48,773|
Pay ratios from the 2017-2018 fiscal year reported as of 5/22/2018
Bisman offered an explanation of the wide discrepancy. “Molson Coors operations are almost all in North America and Europe,” he said, “whereas some of the other companies have significant operations in emerging markets, like China, India, and Mexico, where competitive pay levels are lower. Therefore, the median pay would be lower. If the companies had identical geographic footprints, I would hypothesize the median pay would be similar.”
Beyond geography, in general, pay ratios are affected by factors such as “business size, workforce distributions, and even the methodology used to calculate the ratio,” said Charlebois. Other factors that come into play include:
Why Is PepsiCo’s Pay Ratio So High?
Looking at the CEO compensation amounts reported, the outlier of the group is PepsiCo, the parent company of Pepsi, Gatorade, Tropicana, Frito-Lay, and Quaker. With CEO Indra Nooyi making $31.1 million, PepsiCo’s pay ratio came in at 650:1.
According to Charlebois, “company revenue is one of the primary drivers of CEO pay, and PepsiCo’s revenue of $64 billion is almost twice that of Coca-Cola, at $36 billion.” Compared with the other three companies on the list, PepsiCo’s revenue is approximately nine to 83 times higher, he said.
Nooyi—notably the only woman and person of color holding the post of chief executive officer at the companies listed—has higher reported compensation for other reasons as well. For example, she is a “long-tenured CEO with a meaningful pension value,” Bisman said.
“James Quincey at Coca-Cola was recently promoted to CEO last April and has a smaller pension value. If you were to use the compensation of his predecessor, Muhtar Kent, the ratio of Kent’s compensation to that of the median Coca-Cola employee would be closer to 400:1,” which is more comparable to the figure reported by PepsiCo.
In addition, Nooyi received a hefty amount of cash under PepsiCo’s long-term incentive plan, which “paid out 75 percent above target for the period ending in 2017, which is about $4 million more than the target amount,” according to Bisman.
Rules from the Securities and Exchange Commission require companies to report LTIP cash payouts in the Non-Equity Incentive Plan Compensation column of the Summary Compensation table. It’s less common for companies to have a cash LTIP, and the target or accounting value is reported in the Stock Awards column, he said.
While this is just the first year for the disclosures, it will be interesting to see how the pay ratios change over time and if employees or potential candidates will use the median employee’s compensation as a negotiating tool for their own pay down the road, Bisman added.
For additional reading, see these related articles: Big Question Under CEO Pay Ratio Rule: Who Is Your Median Employee? and CEO-to-Worker Pay Reports Show Wildly Divergent Ratios.
Gain a deeper understanding of the legal complexities of employee benefits and executive compensation with a free trial to Bloomberg Law: Benefits and Executive Compensation .
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