CINCINNATI - The average Cincinnati worker made $44,636 in 2012.
The average Cincinnati CEO made 93 times that amount, or $4.2 million, according to data compiled by WCPO Digital.
Whether that disparity offends your sense of fairness or inspires you to seek a better job, you can expect to see more of these kinds of numbers in the future.
Three years ago, Congress mandated that publicly-traded companies reveal annual data on CEO-to-worker pay ratios -- explaining how their CEO's pay compares with the median of the annual total compensation of their employees.
That still has not happened.
Instead, corporate lobbying groups continue to seek new legislation to repeal the rules, or at least modify how the ratios are reported under the Dodd-Frank Wall Street Reform Act of 2009. Dodd-Frank beefed up regulatory oversight of investment transactions and required increased disclosure by Wall Street’s major players after the near meltdown of the U.S. economy in 2008. The pay ratio rule is one of dozens required to be implemented by the Securities and Exchange Commission under Dodd Frank.
As the debate continues in Washington, the WCPO Digital analysis of public data offers a glimpse at what those ratios might look at in Cincinnati. CEO-to-worker ratios were determined by comparing 2012 CEO compensation to U.S. government data on worker salaries in the industries in which their companies compete.
Search our interactive database below (Or at http://www.wcpo.com/money/business_news/CEO-Pay-Tri-State-CEOs) to see how each CEO’s compensation package compared to the average worker in a same industry. The database also shows how shareholders fared in each company in 2012.
Not all CEO-worker-ratios the same
At 11 local companies, CEOs made more than 100 times the average worker in 2012.
Macy’s Inc. CEO Terry Lundgren led the pack.
His $11.3 million pay package was 451 times the average department store worker.
Macy’s spokesman Jim Sluzewski said the pay of its senior executives is directly tied to performance, as measured by sales, cash-flow and profitability metrics. When given the chance to endorse Macy’s pay plans, shareholders voted more than 98 percent in favor, Sluzewski added.
Steven Burns, CEO of AMP Holding Inc.
At the other end of the pay-ratio spectrum was Steven Burns, CEO of AMP Holding Inc., a 22-employee manufacturer of electric vehicles located in Loveland, Ohio. Burns’ 2012 compensation of $211,000 was less than 4 times that of the average U.S. autoworker, according to the Bureau of Labor Statistics.
EW Scripps CEO Rich Boehne
The median pay disparity for 33 Cincinnati companies was 40 times the average worker’s salary. Among those above the median was Rich Boehne, CEO of WCPO’s parent company, E.W. Scripps Co., whose $2.7 million compensation was 43 times the average wage of workers in television broadcasting. The largest company below the median was Cincinnati Financial Corp., where CEO Steven Johnston’s $2.1 million compensation plan was 35 times the average wage for companies engaged in “insurance related activities,” according to the Bureau of Labor Statistics.
Pay Disparity On The Rise
“It’s legitimate to question how much value one person adds to the corporation,” said Brandon Rees, acting director of the office of investment for the AFL-CIO in Washington, D.C. The federation of labor groups represents 12.2 million members.
It has promoted the idea of pay-ratio reporting by producing an annual report on CEO pay at www.paywatch.org. This year, it concluded the average CEO of companies in the Standard & Poor’s 500 was 354 times that of the average worker.
That’s up from a ratio of 42 to 1 in 1982 and it’s much higher than ratios found in Europe.
“One of the problems with executive pay is that it’s too often not tied to the long term sustainability of the company’s performance,” said Rees. “But the other problem is that the pay levels are just too high.”
In a 2011 letter to the SEC, the AFL-CIO cited several studies showing companies with high pay disparities have lower employee morale and higher turnover rates.
“You can’t get the best out of employees without treating them well,” said Paul Lapides, director of the Corporate Governance Center at Kennesaw State University in Georgia. “When one person’s pay seems absolutely ridiculous compared to what other people make, they’re going to work less. It’s not always consciously, but it happens. So, CEOs need to ask themselves, ‘Can I get the hearts and minds of the 30,000 people who work for this company if I make this amount?’”
For Walmart associate Charmaine Givens-Thomas, the answer is clear. She finds it offensive that Walmart CEO Michael Dukes makes hundreds of times more than she does. A recent report by Bloomberg found Dukes’ $18.1 million compensation package was 611 times the average worker in general merchandise stores.
“It’s like greedy times a hundred,” Givens-Thomas said. “I don’t understand how somebody can make that much money when they have associates making far below the poverty level.”
Givens-Thomas is a Chicago resident who stopped in Cincinnati May 31 as part of a multi-city bus tour by the labor rights group, OUR Walmart. The group’s “Ride for Respect” tour ended with a protest at the retailer’s annual meeting in Arkansas June 7. The group is seeking better pay and working conditions for Walmart associates.
Kroger CEO David Dillon
The local chapter of the United Food and Commercial Workers union helped organize the Walmart protest.
But UFCW Local 75 spokeswoman Brigid Kelly would not comment on pay disparities at Kroger, where CEO David Dillon made 298 times the average grocery store wage in 2012. Dillon ranked third among all Cincinnati CEOs in the pay ratio ranking, with a $7.9 compensation plan.
“That’s not why we’re here,” Kelly said.
Kroger spokesman Keith Dailey referred WCPO Digital to page 19 of its proxy statement to shareholders, where the company’s compensation plans are fully explained.
“We’ve not taken a position” on the issue of pay-ratio reporting, Dailey said via email. “We comply with all enacted SEC rules.”
Pay Comes in Various Forms
Big-company CEOs tend to have the largest pay ratio disparities because they tend to have the biggest pay packages. But there are a couple of important differences between the CEO pay plans disclosed to shareholders and the paychecks sent to typical workers.
For most big-company CEOs, a big chunk of pay is in the form of stock incentives that can grow or shrink in value based on whether the company achieves business goals. So, the value disclosed to shareholders is an estimate based on assumptions that will take years to verify.
At Macy’s, for example, 86 percent of Lundgren’s 2012 pay is “at risk and tied to financial performance, corporate objectives and/or stock price performance,” spokesman Sluzewski said. So how well the company does equals how well Lundgren will do financially.
Another important point is that the salaries at the top of the corporate ladder are driven by the same market forces as those on the bottom rung, said Timothy Bartl, president of the Center on Executive Compensation, a Washington, D.C. –based advocacy group that has lobbied against pay-ratio disclosure.
“Companies pay a lot of close attention to paying in a way that’s competitive and designed to attract the best employees at each level,” Bartl said. “The market for someone at the engineer level is going to be different than someone who has overall responsibility for organization.”
Bartl runs the center for the HR Policy Association, a Washington-based nonprofit whose board members include senior executives from some of America’s largest companies, including General Electric, Macy’s and Kroger.
He said the pending SEC rules on pay-ratio disclosures will be costly and cumbersome to prepare, and will provide little insight on how public companies treat their employees.
“There are so many variables that make it difficult to compare and that makes (the ratio) almost meaningless,” he said. “If a company is doing a majority of its work in big cities, its ratio is going to be different than if it’s engaged in manufacturing in rural areas. One company might own a factory abroad. Another contracts out the work. They’ll have different ratios. In order to make a ratio like that meaningful you need so much disclosure that it would be impossible to provide. Without that, all you have is a number.”
Bartl said it could cost companies millions of dollars annually to comply with pay ratio rules as defined by Dodd-Frank because it requires companies to develop a median-pay estimate for its workers in the same manner as executive pay is presented to shareholders.
“Some countries have hundreds of pay systems across dozens of countries globally,” he said. “When you talk to companies about how they maintain data, it’s exceedingly cumbersome.”
Corporate governance expert Paul Lapides said compliance with the rule shouldn’t be that difficult.
“Is it more complicated than making a cell phone? No. Any good analyst could estimate the number,” the Kennesaw State University professor said.
Local Companies With Highest Disparity
Cincinnati’s Fifth Third Bank has already made an estimate on median pay for its associates. It’s $40,000, based on a statement prepared by the bank in response to media inquiries about pay ratios.
The bank said CEO Kevin Kabat’s base salary was 25 times the median for Fifth Third employees and is “focused heavily on long-term initiatives, which directly aligns to shareholders’ interests.”
Kabat’s base salary was $1 million in 2012. Divide it by 25, you get $40,000, which is $9,450 less than the Bureau of Labor Statistics’ figure for workers in the banking industry.
The WCPO Digital analysis ranks Kabat fifth among local CEOs with an $8.9 million salary that is 180 times the typical bank employee.
Just ahead of Kabat are brothers Craig and Carl H. Lindner III who share the CEO title at American Financial Group. They made a combined $16.6 million in 2012, or 282 times the average insurance-industry worker.
American Financial Group declined to comment.
Procter & Gamble Co. declined to discuss its stance on the potential pay-ratio rules, except to say that it will comply with whatever rules are adopted. P&G pointed to annual proxy statements to shareholders, where pay practices are explained in detail.
Ex-P&G CEO Bob McDonald
Former P&G CEO Bob McDonald ranked second behind Terry Lundgren in the WCPO Digital pay-ratio analysis, with a $15.2 million compensation package that is 323 times the average wage for makers of “soap and other detergents.”
“P&G's fundamental and overriding objective is to create value for our shareholders at leadership levels on a consistent basis,” said P&G spokeswoman Jennifer Chelune in an email response to WCPO Digital inquiries. “To accomplish this goal, P&G’s executive compensation programs emphasize pay for performance and support of our business strategies.”
Some expect pay ratio rules to continue an evolution toward greater engagement on matters pertaining to CEO pay, an evolution that began with implementation of Dodd-Frank reforms in 2010. Those reforms included shareholder advisory votes on compensation and rules that led to better explanations of how executive compensation plans related to company performance.
Governance expert Lapides said he expects pay ratio disclosures will work the same way advisory votes did. Companies that saw shareholders reject their pay plans were forced to defend their positions and ultimately change behavior.
“I think it’ll just force the management and the board to spend more time … on what’s the right pay,” Lapides said. “I’m sure for some people, it will get to their sense of fairness. The numbers are certainly going to get a lot of attention.”
WCPO Digital pulled CEO compensation data from annual proxy statements companies file with the Securities and Exchange Commission. Specifically, compensation data from the "summary compensation table" in each company's proxy document was analyzed. The pay category Changes in Pension Value was excluded from tabulations, because it is an actuarial estimate and does not reflect actual gains and losses.
That data was combined with average worker salary data from the Bureau of Labor Statistics report: May 2012 National Industry Specific Occupational Employment and Wage Estimates.
North American Industry Classification System (NAICS) data was also used to most closely match each company to determine average industry worker salary, although many companies actually compete in multiple categories. NAICS data is the standard used by federal agencies to classify businesses in order to collect, analyze and publish statistics tied to the U.S. economy.
The analysis required some assumptions that could impact the outcome. The wage data that most closely matched each CEO's related industry was used.
Others who studied this issue have added the cost of employee benefits to average worker salaries but we did not.
Numbers on shareholder return came from Bloomberg and measure the total percentage gains to shareholders from stock price increases and dividends for each company’s fiscal year.
Corporate Governance expert Paul Lapides, the management professor at Kennesaw State University in Georgia, said WPCO Digital’s methodology was valid.
“Unless companies are willing to open up their records, what you have is the best estimate you can make,” he said. “It’s a very reasonable way of doing it and probably the only way you could do it based on information that’s publicly available.”
WCPO Digital Multimedia Producer Brian Niesz compiled and created the interactive graphics and photo gallery.
WCPO Digital Intern Emmi MacIntyre provided research.
WCPO Digital Managing Editor Chris Graves edited this report.
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