US median pay ratio only 75:1, but wait, what is this at Weight Watchers: 5,908:1

What’s the story behind the ‘overpaid US CEO’ narrative?

Median ratio of 72:1? That’s not big enough! How are we going to be able to promulgate the story of the overpaid US CEO when they only pay themselves 72 times higher than their median employee?
Nevertheless, that is the finding of Equilar’s newly launched CEO Pay Ratio Tracker, updated each Monday morning, highlighting the highest and lowest ratios reported that week, as well as the overall median. As of 16 April, 1210 companies in the Russell 3000 had reported. But the highest and lowest ratios make for much juicier reading. The highest reported ratio was reported by Weight Watchers International, at 5,908:1. The lowest reported ratio for Russell 3000 companies to date is 1.75:1, disclosed by Rand Capital Corporation, a venture capital company. Berkshire Hathaway was a close second, reporting a ratio of 1.87:1, though, of course, Berkshire’s CEO only earns $100,000 a year. Having said that, the CEO at Rand didn’t earn that much more, it’s just that the company has higher paid employees: “The annual total compensation of our median employee… was $155,386. [The CEO’s pay] was $272,686.”
Equilar notes that the median ratio has been going down over the period of reporting, and it is currently much lower than its survey results issued earlier this year, and its stayed at this low level for the last three weeks. But it does not believe it will stay there forever. Many of the largest companies, it says, have not filed their proxies yet. And both the earlier survey and proxies already filed show that large companies have large ratios.
This conclusion is confirmed by ISS Analytics’ commentary, included in its preliminary CEO pay survey out last week. Entitled ‘Interesting Numbers, Few Conclusions’, the analysis notes the same highs and lows as Equilar, but breaks down the numbers by size and industry.For the S&P 500, the median ratio is 166:1, while for the S&P 400, it is 91:1 and 54:1 for the S&P 600, the next two constituents in the S&P 1500. For the rest of the Russell 3000, the ratio is even lower, at 32:1.
Both ISS and Equilar offer an industry breakdown, though with differing sector definitions. ISS’ highest differentials (208:1 and 207:1 respectively) are in the Capital Goods and Materials sectors, while Equilar’s are found in Consumer Discretionary and Consumer Staples (350:1, 236:1). Low ratios in healthcare/pharmaceutical companies and energy companies are explained by some additional statistics offered by ISS, which notes that 64 of S&P 1500 companies reported median employee pay of more than $100,000. Of the top 10 of these, five were energy companies and three healthcare. The other two were real estate investment trusts.
Few conclusions is right. Disclosing ratios, that depend for their size on two figures, is useful only to a point. A small ratio could mask excessive CEO pay if, as is clearly the case in some instances, employees are all highly paid. The highest paid median employee so far is at biotech company Innoviva, earning $382,460. The CEO earned around $4.2 million, which doesn’t seem too much until you realise this is a company with just over $200 million in revenues. It’s tiny. Valero Energy, another company with very highly paid employees, has revenues of $94 billion, but it’s CEO is paid $22.5 million, and Weight Watchers, the company with the biggest ratio so far, its CEO was paid a not exactly low-calorie $33.4 million, with revenues of only $1.3 billion. But, this was one very big golden hello and the stock price has more than doubled since she was appointed in July 2017 to over $65 now. Though it had already leapt from $12 to $34 before she even started. The real conclusion is that, out of context, without the figures used to calculate them, without performance and value data, pay ratio figures are meaningless.