CINCINNATI -- Bar fights have started over less than the notion that one person is worth 54 times less than another.
But nobody fussed at Cincinnati Financial Corp. in March when the company disclosed in a securities filing that CEO Steven Johnston made 54.3 times the median worker in his company.
"It hasn't, in my view, been a big issue," Johnston said.
This is the first year that publicly traded companies are required to tell investors how their CEO pay compares to the rest of the work force with a mandatory math calculation known as the CEO pay ratio. Some companies braced for backlash as they revealed headline-grabbing numbers: Toy maker Mattel Inc. paid its CEO 4,987 times the median of all pay packages in the company.
The highest ratios in Cincinnati include Macy's Inc. at 806 to 1, Convergys Corp. at 664 to 1 and Kroger Co. at 547 to 1. All three explained in filings that they have a large employee base that includes lots of part-time or seasonal workers.
"Macy's compensation program is designed to motivate employees at all levels to perform," the company told WCPO in a statement.
The pay ratios for 16 local companies -- and loads of other executive-pay details -- are included in a searchable database at the end of this story. WCPO tracked pay disparity for several years by comparing Cincinnati's highest paid executives to industry averages, but this is the first time people can see how pay disparity looks inside an individual company. More importantly, employees can now see for the first time how close their pay is to the bottom half of their own organization.
Cincinnati Financial's disclosure drew little response from employees and investors, said Johnston, CEO since 2011. Its ratio is lower and its median pay higher than other companies in the financial sector, according to a May 9 report by compensation consultant Pearl Meyer.
Cincinnati Financial also had the fourth highest median pay among Cincinnati companies that disclosed such data this year, but Johnston said that was never a company goal.
Steven Johnston
"Our structure is what it is," he said. "We don't design the pay with this ratio in mind. We design the pay to attract and retain excellent associates and then this number falls out as a result. We're satisfied with where it is."
What the median means
Corporate governance activists are just happy that it finally exists.
"Investors and directors are for the first time getting this information," said Brandon Rees, deputy director of corporations and capital markets for the AFL-CIO in Washington, D.C. "So, they're starting to talk about the company's approach to their workforce and that's a very healthy and positive thing."
Rees has been tracking CEO pay ratios for more than a decade with the AFL-CIO's "Paywatch" website. It compares each company's pay disclosures in shareholder proxy statements to average-worker-salary data from the U.S. Bureau of Labor Statistics.
Rees was among many activists who lobbied the Securities and Exchange Commission to require disclosures that explain how executive pay compares to the rank and file in each company.
"This allows investors to invest in those companies that provide good jobs," he said. "That will lead to capital being allocated to high-productivity work places, which is, I think, a positive thing."
Others say that's not what the new disclosures will accomplish.
"The rule is fundamentally flawed," wrote Mark Mathews, vice president of research, development and industry analysis for the National Federation of Retailers. His March 7 blog post argues the SEC's rules for calculating median pay are "heavily biased against businesses that rely on seasonal and part-time workers."
Mathews argued that full-time retail jobs pay an average of $28 an hour. That's more than $50,000 a year. But 30 percent of retail employees work only during peak hours, when customers want to shop.
"This rule penalizes companies for catering to the needs of consumers," Mathews wrote. "It shames retailers for providing flexible job opportunities and entry-level work for America's young people. And it demoralizes those getting started in their careers and climbing the economic ladder."
One local attorney who helped about 20 companies compile their pay-ratio disclosures said his clients were worried about revealing median pay numbers for the first time.
"By definition, half of the workers at your company are going to be below that number," said Shane Starkey, partner in charge of the Cincinnati office of Thompson Hine LLP. "Everyone wants to be average, right? But people are going to look at that and say, 'Why am I below median? Someone needs to explain that to me.'"
Jessica Wright
Jessica Wright hasn't heard anyone complain about the new disclosures in the context of her duties as director of corporate engagement for the job-training agency Cincinnati Works, but Wright does have some advice for any worker vexed by the numbers: Have a constructive conversation with your boss.
"It's not just a matter of walking in and saying, 'I see this salary posted and I want to make this,'" she said. "It's more, 'What is my skill set? What are my qualifications? And what do I need to do to get there?'"
Still others question whether those conversations will ever happen because the numbers are too difficult to understand. They rely on too many assumptions and do not account for structural differences between companies.
"The numbers are not going to be apples-to-apples," said Edward Hauder, senior advisor for Exequity LLP. The Chicago-based compensation consultant said pay ratios evolved in a "politically motivated" environment, as opposed to a rule-making process that provided investors "something that they needed or wanted."
Local disclosures
One thing that's clear from company disclosures is that many companies reported similar facts differently.
For example, E.W. Scripps Co. reported a blended figure for CEO pay that consisted of Rich Boehne's compensation before Aug. 8 and new CEO Adam Symson's pay for the rest of the year. CECO Environmental Corp. used the full-year compensation estimate for Dennis Sadlowski, even though he started as interim CEO Feb. 1 and the post wasn't made permanent until June.
Some companies reported two different numbers for median pay. AK Steel Holding Corp., for example, said its median employee's compensation was $92,949. But it also provided an "alternative measurement" that included "the average cost of a family healthcare plan at AK Steel, which brought its median pay number to $105,465, highest in the region. Convergys Corp. provided a median pay number of $7,775 for all of its 115,000 workers and a second number, $23,907, for the roughly 39,000 Convergys employees who work in the U.S.
Several companies include language in their pay ratio disclosures that warn investors not to compare their pay stats to others. Here's an example from Kroger's proxy:
Other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. Therefore, the estimated pay ratio reported above may not be comparable to the pay ratios reported by other companies and should not be used as a basis for comparison between companies.
Activists like the AFL-CIO's Brandon Rees scoff at such language.
"I could say the same thing about earnings," he said. "The calculation for earnings by accountants relies on estimates and assumptions that may not be comparable, but of course everyone does compare them."
Despite all the doubt about whether the numbers are useful, few expect pay-ratio rules to go away. Rees even thinks they could be expanded in the future to provide gender- and race-based disclosures.
"Women and people of color deserve to know if they're being discriminated against," he said. "Keeping worker pay secret has perpetuated the ability for unlawful discrimination to occur. So I think labor market transparency is a very positive thing."
Which brings us back to Steven Johnston at Cincinnati Financial, who agrees that transparency is valuable. He just isn't sure that's what the new pay ratio rules provide.
"There's so many differences in operations between companies that I don't really focus on it too much," he said. "I do think it's going to be tough on the average person to dig through all that."
How much did your boss make?
This is the fifth 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 102 executives who made at least $1 million in 2017, compared to an average of 97 in the prior four years.
- There were 21 executives with more than $5 million in total compensation in 2017, versus the four-year average of 18.
- Among CEOs who held the job for at least two full years, median pay – or the midpoint of all pay plans -- increased 21.7 percent to $5 million. Median shareholder return for Cincinnati's public companies was 2.5 percent.
- Cincinnati's stable of public companies continued to shrink in 2017, as CECO Environmental Corp. relocated to Dallas and Italy's Prysmian Group announced plans to acquire General Cable Corp. later this year. Since 2014, 10 Cincinnati-based public companies have been acquired or relocated to other cities.
METHODOLOGY
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. Some executives benefit from above-market interest rates in their pension plans. Those benefits, when disclosed, are counted as cash-based pay.
That data was combined with average worker salary data from the Bureau of Labor Statistics report: May 2017 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.
Performance data for each company was supplied by S&P Global Market Intelligence, which pulled total shareholder return estimates over one year and three years for the fiscal year in which that company operates.
