It takes just three work days, on average, for the chief executive of a public company in Colorado to earn as much money as the typical worker at the same firm does in an entire year.
That’s because CEOs in Colorado earn 94 times the median annual pay of their employees, according to a Denver Post analysis of filings of nearly three dozen of the largest companies in the state.
Companies are reporting “CEO pay ratios” that highlight the gap between company leaders and employees for the first time this spring, based on last year’s pay numbers. In Colorado, those ratios range from a high of 814 times for Steve Ells, former CEO of Chipotle Mexican Grill, to zero for Dave Liniger, former co-CEO of Re/Max Holdings, who didn’t take any pay at the real estate brokerage franchisor he founded after it went public in 2013.
The disclosures are the result of a law passed in 2010 during the first term of former President Barack Obama. It was controversial at the time — companies argued it would be burdensome to calculate and difficult to use to draw meaningful conclusions — and it remains so today.
But for labor groups and others trying to highlight problems of income inequality and pushing for more transparency in corporate behavior, the disclosures were worth waiting for.
“One of the reasons Congress required disclosure is that it wanted corporate boards to think of the reasonableness of CEO pay relative to the rest of the company,” said Brandon Rees, deputy director of corporations and capital markets for the AFL-CIO labor union in Washington, D.C.
The push to calculate and publicize the ratio gained momentum after the 2008 financial crisis and following concerns raised by Occupy Wall Street and other groups that too much wealth was concentrating in the hands of too few people.
“It was widely understood that excessive CEO pay had led to excessive risk taking,” said Rees, referring to the incentives that caused executives to cut corners to boost stock values in the short-term and help precipitate the banking crisis.
There also were concerns that corporate culture in the country had moved away from an ethic of shared effort and shared reward to a hierarchical winner-takes-all approach, he said.
The measure was included in the Dodd-Frank Act — which among other reforms gave shareholders a vote on executive pay, imposed tighter restrictions on risk taking by banks and created the Consumer Financial Protection Bureau — and faced strong opposition.
The U.S. Securities and Exchange Commission estimated that companies would spend 190 hours calculating the ratio, but companies estimated it closer to 952 hours each. The total tab for all public companies topped $710 million to do the required legwork, according to a report from the Center for Capital Markets. All that, critics say, for a measure that isn’t useful.
“You really can’t compare different companies in a way that makes any sense,” said John Elofson, an attorney at Davis Graham & Stubbs in Denver who has advised clients on the new rules.
Two companies could be identical in almost every respect, but one might outsource lower-paying tasks while another does them in-house, he said. Under that scenario, the first company would have a lower ratio than the second.
The Denver Post examined the ratio for 35 of the state’s larger public companies that had reported it in their proxy statements as of April 16.
The average ratio was 94 for 2017, meaning it took CEOs under three work days to pull down as much, at least on paper, as the median worker at their companies did in an entire year. That’s based on average CEO compensation of $5.32 million last year and average worker earnings of $79,000.
Big option and stock awards at the largest companies can skew the CEO pay number. The median or half-way point for the ratio was lower at 53, which works out to a Colorado CEO matching the average worker’s pay every week. The median pay for CEOs in the group studied was $4.1 million, while the median worker pay came in at $79,815.
Relying more heavily on part-time, seasonal and foreign-labor lowers the median worker pay and can push up a ratio, and there are stark differences across industries. All of the Colorado oil and gas companies examined had median worker pay above $100,000, and as high as $177,300 at SM Energy.
Restaurants and retailers, by contrast, pay much less given the lower level of skills required. At Chipotle, the median pay for 70,000 workers was $13,582, while Ells had reported compensation of $11.05 million.