In Depth
The CEO pay ratio is a disclosure requirement under the Dodd-Frank Act that compels public companies to report the ratio between the CEO's total annual compensation and the median employee's total annual compensation. For example, a ratio of 300:1 means the CEO earns 300 times what the median worker earns. Companies first began reporting this metric in proxy statements filed for fiscal year 2017. To calculate the ratio, companies must identify their median employee, the person whose compensation falls exactly in the middle of the full employee population. Companies have considerable flexibility in how they identify this median employee, including the ability to use statistical sampling, exclude up to 5% of non-U.S. employees, and choose their own consistently applied compensation measure. This flexibility means that ratios are not perfectly comparable across companies, though they still provide a useful directional indicator. Industries with large numbers of part-time or hourly workers (like retail and hospitality) tend to have the highest ratios, sometimes exceeding 1,000:1, while industries with highly paid professional workforces (like technology and finance) tend to have lower ratios. The CEO pay ratio has become a focal point for labor activists, governance researchers, and the media as a symbol of income inequality within corporations.