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Executive Pay 2019: Could your family get by on 'median pay?'

Corporate data sheds new light on average Joe
Posted at 5:00 AM, May 21, 2019
and last updated 2019-05-21 18:28:06-04

CINCINNATI — Life in the middle improved at Cincinnati-based companies in the last year, but it remains far from ideal for those trying to support a family, a new I-Team analysis suggests.

This is the second year that publicly traded companies are required to disclose how their median pay compares to CEO compensation. Six local companies are making the disclosure for the first time this year, while four are small enough to be exempt from the rule. Of the remaining 16, median pay increased at a dozen companies and the CEO pay ratio declined at nine.

Detailed pay disclosures on 133 local executives and the CEO pay ratios for 26 local companies can be found in a searchable database at the end of this story. But here’s a brief synopsis:

  • Macy’s Inc. had the biggest CEO pay ratio this year. Jeff Gennette made 582 times the median employee at the department store chain. LCNB Corp. had the region’s lowest ratio. CEO Steve Foster made 14.1 times the median worker at the Lebanon-based bank.
  • Macy’s had the region’s lowest median-pay number, at $21,885. Medical-equipment maker Atricure Inc. had the highest at $116,458.
  • Nine companies reported median pay figures below a national “living wage” metric that estimates what it costs for one adult to support a family of four, while two companies reported median pay below the 2018 federal poverty guideline for a family of two adults and two children.

Investors are paying attention to these disclosures because they want to make sure companies are investing in workers at all levels of the company, said Holly Mazzocca, a principal at Bartlett Wealth Management Downtown.

Bartlett Wealth Management principal Holly Mazzocca said investors care about compensation disclosures.

“Investors continue to want to see more transparency and clarity around the actual makeup of what goes into executive compensation,” Mazzocca said. “They would also love to see higher average starting ratios for new employees, especially those who are at entry-level positions.”

Some institutional investors are pushing for even more disclosure on this topic. The Ohio Public Employees Retirement System is among 48 organizations with $3.3 trillion in assets under management that sent a letter this year to all companies in the S&P 500.

“We believe that a company’s workforce is an asset to be invested in, not a cost to be minimized,” said the letter. “Investments in employee compensation can motivate employees to be more productive and engaged in their work. Disclosure of the median employee’s pay provides a reference point for understanding the company’s workforce.”

Here’s the first thing you need to know about median pay: It’s a made-up number to some extent.

Companies rank their employees from top to bottom, excluding some overseas employees from the analysis and annualizing the pay of others before settling on a single employee who is the median worker in their company. Then, they calculate that person’s pay in the same way they calculate the CEO’s annual compensation.

Federal pay-disclosure rules allow a variety of methods to arrive at median-pay estimates so companies can adjust for anomalies in their workforce. That's why experts caution against comparing one company’s number to another. But all median pay disclosures have this in common: They are an attempt to tell investors what pay conditions are like in the middle of their company.

And a quick comparison to two national poverty indicators suggests there is room for improvement.

Two companies – Macy’s and Kroger Co. – disclosed median pay below $25,100. That’s the level at which federal poverty guidelines allowed a family of four to qualify for public assistance in 2018.

Nine companies -- including Cintas Corp. and First Financial Bancorp. – disclosed median pay of less than $53,799. That’s the 2018 “state average living wage,” required for one adult to support a two-parent, two-child household, according to research compiled by MIT Professor Amy Glasmeier.

Whether a company’s median pay number is good or bad depends mostly on the answer to this question: Compared to what?

For example, Macy’s median pay is 58 percent higher than the number it disclosed last year and about $10,000 higher than the median pay at Kohl’s Corp. and TJ Maxx parent TJX Companies. Kroger has a higher median pay than Walmart Inc. and Target Corp. And that doesn’t factor in Kroger’s benefit package, which is richer than its non-union rivals.

“Go talk to the non-union guy working at Walmart,” said Kevin Garvey, president of UFCW Local 75, which represents about 22,000 Kroger employees from Cincinnati to Toledo. “They look at my Kroger guys and say, ‘Man, you got a good gig.’ You get health care, dental and vision. A pension. Who in the hell’s got a pension plan in today’s world?”

But that doesn’t mean the “average Joe” is satisfied with the state of his union contract.

“I think they could do better by their workers,” said Jonathan Williams, communications director for UFCW Local 400, a Landover, Maryland-based union that represents about 30,000 Kroger employees in six states and the District of Columbia. “In some contracts, they have moved away from pensions. In other cases, they’ll do things like raise starting pay a little bit and then increase the employee contributions on health care, to an extent that it doesn’t make up for the fact that the starting pay went up. And so, we see a pattern of them trying to squeeze out long-term employees and continue the sort of churn of low-wage part-time employees with very few benefits.”

In regulatory filings and statements to WCPO, retailers cited part-time and seasonal employee as a key factor influencing their median pay numbers. Kroger and Macy's declined to be interviewed.

Kroger said it is "proudly investing half a billion dollars in increasing wages and training for our store associates by 2020."

Macy's said its compensation program is designed to motivate performance. It awarded $44 million in bonus payments to store employees last year, including part-time and seasonal workers.

Kohl's said it offers "competitive compensation on a market-by-market basis."

Target said it has "a long history of investing in our team by giving them opportunities to grow professionally" and added that 40 percent of its workforce is "student or retiree age and looking to build schedules around their availability."

‘Laden with assumptions’

Experts agreed that retail companies are unique with a workforce that relies heavily on part-time and seasonal employees to staff up for peak hours.

“Macy’s alone hires over 30,000 seasonal and part-time workers just to cover the holiday rush,” said Mazzocca, who tracks compensation trends for Bartlett clients who apply social-responsibility standards to their investment portfolios. “I think that’s an important fact to consider is that this also looks at part-time employees or people who maybe would not be able to receive employment elsewhere. So, Kroger for example works really hard to help those first-time workers, those high schoolers who have a really difficult time finding a job anywhere else.”

Beyond the unique attributes of certain industries, median pay disclosures are “so laden with assumptions you can’t exactly know” what the implications are if one company has a higher median pay than another, said Deborah Lifshey, managing director in the New York office of Pearl Meyer, a corporate compensation consultant.

For example, Kroger, Target and Walmart annualized the pay of employees that didn’t work a full year when they conducted median-pay analysis for 2018. Macy’s annualized pay for part-time and full-time workers, but not for seasonal employees. Macy’s and Target revealed that its median employee was a part-timer last year, while Kroger and Walmart did not describe the job status of that worker. Walmart and Macy’s excluded from its median-pay analysis some of its workers based outside the U.S, but Kroger and Target did not.

“Let’s say a person identified as your median employee is located overseas and only worked for part of the year and had a part-time job,” Lifshey said. “That’s a person that’s not representative of the U.S. workforce, working on a full-time basis. It’s just not.”

Lifshey published a detailed analysis of median-pay disclosures from 2017. It showed bigger companies tended to have lower median pay. Utilities and health care companies disclosed the highest median-pay numbers while retailers and restaurants ranked at the bottom. Lifshey said some investors and activists are using the median pay stats to justify demands for higher entry level compensation, but she doesn’t think it’s a “good guide to the conversation.”

Life at the bottom

Here is one illustration of that point. Not every company reveals how many employees are included in their median-pay analysis. But the 17 that did added up to 352,081 employees this year. That means 176,000 people rank in the bottom half of their company’s pay scale. But that doesn’t necessarily mean there are 71,475 people at Macy’s who didn’t earn a living wage.

That might be true “if you make the assumption that whoever they’re identifying would have worked full time if they could have worked full time,” Lifshey said. “But if you step back and look at the bigger picture … maybe you’re looking at a part-time sales associate because they’re in college or doing something else or taking care of their family and so if you’re annualizing it out, they’re making not that much for the year. But this might be supplemental income for somebody that’s doing something else.”

Still, those at the bottom of Cincinnati's pay scale are finding it hard to make ends meet. Clarianne Hayes, 22, is a single mom from Mt. Airy who makes $9.25 an hour from her 30-hour-a-week job at Vine Street Kafe, a restaurant operated by Kroger contractor AVI Foodsystems Inc. Hayes said it takes her two hours and two bus trips to get to work because she stops first in Colerain Township to place her 3-year-old son in daycare.

Clarianne Hayes said her part-time job provides "a good starting pay but it's nothing to really balance life with."

”Some days it can be a bit of a struggle,” Hayes said. “It’s a good starting pay but it’s nothing to really balance life with at the moment.”

MIT’s living wage calculator says $23.07 is the hourly rate that a single parent with one child in Hamilton County “must earn to support their family, if they are the sole provider and are working full-time.” Hayes’ annual part-time pay is below the federal poverty guideline of $16,460 for a two-person household.

”I would like to get paid enough where I don’t have to completely budget a whole check to take care of life expenses,” Hayes said.

Many local companies are helping to lift people out of poverty by creating jobs, training and promoting local workers and contributing to charity, said Jessica Wright, director of employee engagement at Cincinnati Works, a job-coaching nonprofit. But she thinks more could and should be done.

Jessica Wright, director of employer engagement at Cincinnati Works

“Our poverty rate is just too high,” Wright said. “It’s too high for our adults, our working poor, our children in this city. It’s too high. But I think we all have a social responsibility and especially larger companies have that social responsibility to give back.”

Wright thinks the answer lies in training low-skill workers to be more productive, whether that happens on the job or in partnership with government agencies and nonprofits.

“If we’re hiring entry-level individuals that maybe don’t have the skill set that you’re looking for how can we train them and how can we get them what they need so they can earn a more livable wage and produce more,” she said.

Legislative pressures are bumping up pay in some parts of the country. New Jersey in January became the fourth state to increase its minimum wage to $15 an hour. Democrats in the U.S. House of Representatives have proposed the same amount for a national minimum wage, but that idea would likely face tough sledding in the Republican-controlled Senate.

In the meantime, competitive pressures are forcing wages higher in the Tri-State. After Amazon Inc. announced it would increase its starting pay to $15, Target promised to match that rate by 2020. The average hourly wage for all workers last May was $24.05, up 2.3 percent from the same period in 2017, according to the U.S. Bureau of Labor Statistics. That momentum is likely to continue with unemployment rates hovering near two-decade lows.

Finally, the UFCW’s local president said increased bargaining clout is the best way to reverse the rising disparity between executives at the top of public companies and workers at the bottom.

“In the absence of a strong labor movement that’s what happens, the workers get beat up and the corporate guys make more money,” Garvey said. “You never saw that in 1965. Worker wages were significantly higher, adjusted for inflation. (Now) the rich get richer and the poor get poorer and nobody seems to care.”

How much does the boss make?
This is the sixth year that WCPO has analyzed compensation at publicly traded companies based in Cincinnati. Here are some trends worth noting in this year's analysis:

  • WCPO's searchable database (below) includes 96 executives who made at least $1 million in 2018, down from 102 in 2017.
  • There were 21 executives with more than $5 million in total compensation in 2018, same as last year.
  • Among CEOs who held the job for at least two full years, median pay – or the midpoint of all pay plans -- increased 10.7 percent to $5.3 million. Median shareholder return for Cincinnati's public companies was -4.6 percent.

WCPO obtained compensation data from S&P Global Market Intelligence, which pulled it from annual proxy statements companies filed 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. Because of this exclusion, WCPO’s pay ratio estimates might differ from ratios disclosed by companies. Median pay and shareholder return numbers for 2018 were also supplied by S&P Global Market Intelligence. Median pay numbers from 2017 were pulled from SEC reports by the companies identified in this analysis.