Monday, April 23, 2018

The trendy new metric for the 2018 proxy season is the CEO pay ratio: a new requirement under Securities and Exchange Commission rules that all companies disclose the ratio of total compensation for the CEO compared to total compensation for the company’s “median employee.”

Calcbench has written a few posts about the CEO pay ratio already. It’s an easy number to find, either by searching a company’s proxy statement in our Interactive Disclosures; or by searching for “CEO Pay Ratio” on our Multi-Company page if you want to see the ratios for numerous companies.

But something Netflix said in its proxy statement, filed this morning, gave us pause—

Given the different methodologies that various public companies will use to determine an estimate of their pay ratios, the estimated ratio reported above should not be used as a basis for comparison between companies.

On one hand, you would expect a company to say that. Most CEOs make oodles of money, and their CEO pay ratio is commensurately high. (In the case of Netflix, the ratio for CEO Reed Hastings is 133-to-1.) Of course they want to convey a sense that hey, actually, when you do all sorts of math to calculate the median employee, the boss isn’t making that many oodles of money.

On the other hand, Netflix raises a good point: the size of the pay ratio depends on the nature of the company and what the “median” employee does for a living there.

For example, would you consider Netflix an entertainment business that competes against Fox, CBS, and Disney? Or a technology company that competes against Facebook, Google, eBay, and Amazon? If we’re talking about competing for customers, Netflix is closer to the former; if we mean competing for employees, it’s closer to the latter.

You can also see this question arise with, which filed its proxy statement last week. As we noted then, the median employee at Amazon makes only $28,400 annually — because the vast majority of Amazon’s 560,000 employees aren’t tech professionals; they work in warehouses or delivery. (A Wall Street Journal article addressed this very point today. No doubt chasing the high-quality journalism of the Calcbench blog.)

As we’ve said before, whatever company you are researching, you can easily find its peers through our default “Compare to Peer Group” feature or through whatever peer group you select yourself.

But the CEO pay ratio specifically — that one is a bit tricky. As Netflix says, comparing ratios across multiple companies is not as straightforward as it sounds.

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