US pay ratios not a reliable barometer

Sometimes a denominator is more interesting than the ratio of which it is part. Reforms at the end of the crisis era required public US companies to publish the ratio of CEO pay to that of the median worker. Executive pay was already a mainstay of annual proxy filings. The ratio was instituted to shame companies whose bosses make a packet relative to ordinary line workers.

A few years into this process, the shortcomings of this measure are becoming clearer. One benefit is a better understanding of which industries pay relatively well at a given moment by looking at median salaries and what that says about the drivers of an economy.

A Stem (science, technology, engineering or maths) degree pays off? Seemingly so. The median pay at semiconductor company Broadcom is $201,000. That is the highest among 100 large groups that have so far disclosed pay ratios, according to research firm Equilar. But the explosion in US energy production has been good for roughnecks in oil refining too. Within the top 10 median salaries are Phillips 66, with a median salary of $197,000, Valero and HollyFrontier. The highest-ranked financial services firm, unsurprisingly given its thousands of technologists, is Goldman Sachs at $137,000.

Among the flaws in the pay ratio is the problem that in any given year CEO compensation can spike upwards because of a one-time stock grant. Industries can have vastly different policies on contract or part-time workers that do not necessarily imply employees are ill-treated.

US firms have for years been subject to non-binding say-on-pay votes. The theory is that investors can censure excessive payouts to bosses. Oracle, for example, is often rebuked. Recently Bob Iger of Disney faced a backlash. Pay relative to employees is a distracting metric. Activists should focus on the income of the average citizen. This is the denominator against which to calibrate dissent. /London, April 18