Taking Stock of CEO and Median Employee Pay

Headline compensation factoids can be politicized by the media, damage employee morale, and harm a company’s image. Board compensation committees must increasingly consider stakeholder reaction to the disclosure of CEO and company workforce pay information, in addition to CEO peer group pay data and company financial performance.

Insights for What’s Ahead

• Board fiduciary responsibility requires an increasing focus on executive—and workforce—pay decision alignment to optimize stakeholder reaction and oversee rising payroll costs. Pay disclosure and associated reasoning behind pay levels is on the rise for all workforce segments. This information can be used to support unionization efforts and higher pay demands by new hires and the current workforce.
• Board social responsibility raises the importance of including nontraditional compensation programs on the compensation committee agenda. The cost and messaging associated with noncash compensation are a significant part of a total rewards program. Legislative bodies are requiring more paid time off and increased benefit coverage. This is in addition to rising worker demands for flexible work arrangements.
• To ensure the board considers the total costs and benefits of human capital investments, more data will be required to determine CEO pay and program design. Anticipated reaction by employees, investors, and other stakeholders will increase with growing government requirements for disclosure of human capital cost and pay transparency.