Executive Pay vs. Worker Pay: The 300-to-1 Ratio

On a Tuesday in March, a compensation consultant in Chicago opened the proxy statement of a consumer-products company he advises and went looking for a single number. The filing ran past 130 pages, but the figure he needed sat near the back, in a table of executive compensation: 214 to 1. The chief executive, the company disclosed, was paid 214 times what the employee at the middle of its payroll earned. The consultant had helped prepare the disclosure, so he knew exactly what it did not say.

The pay ratio, as the figure is known, is now a standard artifact of American corporate life. Since 2018, every domestic public company has been required to publish one: the chief executive's total compensation divided by the total compensation of the median employee. The numbers coming out of that calculation have settled, in the most recent filings, near 200 to 1 for the median S&P 500 company, after a stretch in which they climbed past 300 to 1 and, at their peak, touched roughly 400 to 1.

This article is about what the ratio measures, why it swings so widely from one company to the next, and what a decade of mandatory disclosure has changed — and has not. The short version: the number is real, it is public, and it is more complicated than the headline. Start with how it gets made.

How the ratio is calculated

The requirement traces to the Dodd-Frank Act of 2010, which ordered the Securities and Exchange Commission to write a pay-ratio rule. The SEC complied in August 2015, and the first disclosures arrived in 2018, for fiscal years that began on or after January 1, 2017. Foreign private issuers and newly public companies received exemptions, which is why the ratio is not quite universal. The rule itself is posted on the SEC's website.

The calculation has two halves. The top is straightforward: the chief executive's total compensation, as reported in the summary compensation table — salary, bonus, stock awards valued on the day they are granted, option awards, non-equity incentives, changes in pension value, and perquisites above a modest threshold. The bottom is where the work happens. The company must identify the employee at the exact middle of its pay distribution, measure that person's full compensation, and divide. For a firm with 200,000 employees, the SEC permits statistical sampling. It permits any consistently applied compensation measure — W-2 wages, base salary, payroll records — to find the middle employee, which means two companies of identical size can arrive at different medians from the same payroll.

And it permits companies to exclude up to 5 percent of employees who work outside the United States, a provision known as the de minimis exception. None of this is hidden; all of it sits in a footnote that almost nobody reads. The consultant in Chicago has prepared these disclosures for two dozen companies, and he described the annual ritual this way:

"The median-employee search is the part nobody sees. We run the payroll through a model, and the person who comes out in the middle is often working in a warehouse in another country. The SEC is precise about the process and nearly silent about what the number means."

The consequence is that the ratio is less a photograph than a portrait painted with a wide brush. It is computed differently at every company, yet it is cited as if it were a measurement with the precision of a tape measure. The company chooses the sampling method, the compensation measure, and the geographic scope, and all three choices move the final number. That matters when the ratio is used to compare one company with another — and it is used that way constantly.

A ratio that used to be 20 to 1

The pay ratio is a recent disclosure, but the gap it measures is not new. The Economic Policy Institute has tracked the pay of chief executives at large firms against typical workers since 1965, and its series shows the shape of the change: about 20 to 1 in 1965, about 59 to 1 in 1989, about 366 to 1 in 2000, and about 399 to 1 at the 2021 peak. EPI publishes the full series on its website.

The AFL-CIO's Executive Paywatch, which counts the S&P 500 every year, reported an average ratio of 268 to 1 in its most recent annual tally, with average chief executive pay of about $17.6 million. Equilar, the executive-compensation data firm, put the median S&P 500 chief executive's pay at about $16 million in its most recent annual study, an increase of roughly 13 percent over the prior year. The two numbers differ because one is an average and the other is a median: a handful of enormous pay packages pull the AFL-CIO's figure up. Both track the same story — a ratio that sits between 200 and 300 to 1 for the typical large company, down from the 2021 peak but far above anything seen before 1990.

Two forces explain why the gap grew. The first is stock. Equity awards now account for roughly seven of every ten dollars of S&P 500 chief executive pay, and when share prices climbed through the 1990s and again after 2009, grants made at the top of a boom were worth a fortune by the time they vested. The second is the market for executives itself: boards recruit from a small pool of candidates, compensation consultants supply the comparables, and each year's survey numbers become the next year's targets, a loop that pushed pay upward decade after decade while the typical worker's raise tracked inflation and little else.

The stock component also explains why a single company's ratio can look extreme one year and modest the next. Amazon's disclosed ratio was more than 6,000 to 1 in the year a giant stock grant landed in its chief executive's compensation, and about 36 to 1 the following year, when no such grant was made. Neither number described the company's fairness; both described the timing of a vesting schedule. Anyone reading a single year's ratio as a moral verdict will misread most of what they see.

Where the ratio runs highest

The spread between companies is wider than most people assume. At the median S&P 500 company the ratio is roughly 200 to 1, but the disclosed figures range from a handful of highly paid firms below 50 to 1 to labor-intensive retailers and restaurant chains above 1,000 to 1. The pattern is mostly about the denominator, not the numerator. A company with 200,000 hourly employees in dozens of countries computes its median over the entire global workforce, and that median lands where wages are low and shifts are part-time. A bank or a utility, whose workforce is full-time and professional, computes a median closer to the middle class, and its ratio looks tame even when its chief executive is paid well. Equilar's annual study of disclosed ratios has documented the same pattern year after year: consumer-facing employers with global workforces report the highest numbers, and financial and utility firms report the lowest.

Four recent disclosures show the range. Figures are rounded, as disclosed in the companies' most recent proxies.

Company	Chief executive pay	Median worker pay	Ratio
Walmart	about $25 million	about $27,000	about 930 to 1
McDonald's	about $20 million	about $11,000	about 2,250 to 1
Amazon	about $1.3 million	about $36,000	about 36 to 1
Median S&P 500 company	about $16 million	about $80,000	about 200 to 1

Rounded from recent proxy filings and Equilar's annual CEO-pay study.

The table explains why comparisons between companies are treacherous. McDonald's reported ratio is high partly because its median employee works in a restaurant in a country where wages are a fraction of American levels; Walmart's median worker, likewise, is a store associate, not a headquarters analyst. Neither company is hiding anything — the rules require exactly this calculation. But a ratio that spans the globe says less about corporate greed than about where a company employs people. That is the central criticism of the measure, and it is a fair one. It is also, as its defenders note, the point: the ratio is supposed to show the distance between the top of the pay scale and the bottom of it, wherever the bottom happens to be.

The case for the number, and the case against it

Supporters of the disclosure — unions, the AFL-CIO, the Economic Policy Institute, and a loose coalition of governance activists — argue that the ratio puts a hard number on something companies would rather keep fuzzy. Workers can now open a proxy statement and see, in one line, how the top of the pay scale relates to the middle of it. Organizers use the figure in campaigns; journalists use it in stories; and a small but real body of evidence suggests the number has changed the terms of public argument about pay. Several state and local governments have gone further. Portland, Oregon, taxes businesses whose ratio exceeds 100 to 1, and San Francisco approved a similar surcharge in 2020, both measures designed to make extreme ratios cost money rather than merely embarrassment.

The case against

The critics start with the measurement itself. Because companies choose their own sampling methods, compensation measures, and whether to exclude foreign employees, two firms with identical pay structures can disclose ratios that differ by half. The median is global for some companies and national for others. And the CEO figure swings with the grant date of stock awards, so a company's ratio can move 20-fold from one year to the next without any change in policy. Critics also argue the measure punishes the wrong firms: a retailer that employs 2 million people at modest wages in many countries will report a grim number, while a software firm with 5,000 highly paid engineers reports a flattering one, even if the software firm's chief executive is paid more in absolute terms. Institutional investors have largely agreed with the skeptics. The two largest proxy-advisory firms do not use the ratio in their voting recommendations, and shareholder votes on executive pay have continued to pass at about nine of every ten companies.

A compensation committee adviser who has sat through dozens of these discussions described the boardroom view. "The ratio tells a committee nothing it does not already know," she said. "It tells them what a politician or an organizer will say about them. That changes the conversation, but it rarely changes the check."

What the disclosure changed — and what it did not

Eight years of mandatory disclosure have produced a clear verdict on one question: the ratio did not slow chief executive pay. Equilar's median for the S&P 500 has risen in most years since the first disclosures, with dips in the pandemic year and again in 2022, when falling share prices deflated stock grants, and double-digit increases in the years since. Academic studies of the rollout have found little evidence that boards responded to the new number by reining in grants. The disclosure's effect, where it exists, shows up elsewhere. Some studies found that firms nudged the composition of their workforces — shifting hours, relying more on contractors — in ways consistent with managing the median. And researchers have documented that the ratio became a standard point of reference in union campaigns and in the local politics of pay, even as it failed to move the compensation committees that set the checks.

What did change is quieter. The ratio gave workers a number to measure themselves against, and some have used it. A warehouse worker at a big-box retailer who asked not to be identified said organizers circulated the company's disclosed ratio on the loading dock three years ago, and it has been a fixture of conversations about pay ever since. "Nobody remembered the dollar figures," he said. "They remembered the ratio. It was the one number that made the whole pay scale visible at a glance." Pension funds and other large shareholders now screen for extreme ratios when deciding which companies to pressure, even if they do not vote against pay packages over them. And the footnote itself has become a small genre of corporate disclosure, parsed each spring by analysts who track whether companies changed their methodology — a change in the median employee's pay from one year to the next can signal a change in sampling, not a change in wages.

The limits of the experiment are now fairly clear. No federal policy attaches to the ratio; the tax surcharges in Portland and San Francisco remain isolated experiments. Proxy advisers ignore it. And the people who pushed hardest for disclosure never claimed it would equalize pay — they claimed it would make the gap visible and force a public conversation about whether it is acceptable. On that narrower claim, the evidence is hard to argue with: the ratio is one of the most quoted corporate statistics in America, and it did not exist as a required number twenty years ago. Visibility, the record suggests, is the change. The rest is still being negotiated.

What the ratio can tell you

For an individual worker, the ratio is context, not verdict. It tells you how the top of your company's pay scale relates to the middle of it, and nothing about what you personally are worth — your own market value is set by your role, your experience, and your local market, not by the gap at the top. Still, the context is useful in three ways:

• Your company's proxy is free, and the pay-ratio footnote tells you how the median was found: whether the number covers the global workforce, whether the company used sampling, whether it excluded foreign employees.
• The ratio is a fair comparison point when a company's stated values collide with its disclosed structure. A firm that advertises equity while reporting a ratio of 500 to 1 is telling you something about priorities.
• The trend matters more than the level. A ratio climbing for five straight years while your pay is flat is a concrete fact you can carry into a conversation about your own compensation.

The coming years will test whether the ratio gains new force. The European Union's pay-transparency directive, adopted in 2023, is pushing member countries toward regular reporting of pay gaps, and Britain already requires its largest companies to disclose the ratio of chief executive pay to their workers' median pay — a requirement that has produced its own noisy annual ritual without, so far, changing the trajectory of British executive pay. In the United States, the pressure points are local: more cities could follow Portland and San Francisco; shareholder proposals citing the ratio appear each proxy season; and the number has become a standard reference in organizing drives. None of that will reorder pay scales by itself. But the ratio's real power was never the regulation. It is the fact that the number is public, comparable, and annual — a standing invitation to ask why the distance is what it is.

Back in Chicago, the consultant closed the proxy and noted what he always notes: the ratio in the filing would be quoted in the local paper, mentioned in an earnings call, and filed away. His client's compensation committee would not change a single grant because of it. But the number would sit in the public record, next to every other number the company discloses, waiting for the year someone in the plant or the warehouse decides to look it up. That, he said, is the quiet work the ratio does: it makes the distance impossible to ignore.