Colorado CEOs earn in three days what the typical worker earns in a year, new disclosures show

Colorado CEOs earn in three days what the typical worker earns in a year, new disclosures show

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.

Stephen Brashear, Associated Press fileChipotle Mexican Grill founder and former CEO Steve Ells pauses for a moment during an interview with The Associated Press in a Chipotle restaurant in Seattle in 2015.

“We don’t believe that a comparison of CEO pay with pay across a relatively young workforce with a high number of part-time employees provides meaningful information about our business or our compensation practices,” said Chipotle spokesman Chris Arnold.Another concern centers on whether the stated CEO pay numbers will be realized. An increasing share of executive compensation comes in stock awards and option grants tied to hitting performance targets or gains in the stock price.

When company stocks perform poorly, as Chipotle’s has ever since sickening its customers in 2015, those stated compensation numbers don’t get realized.

“If stock awards granted to Steve Ells last year were to vest today, their value would be $0, and excluding the value of stock awards, the ratio of CEO-to-median employee compensation would be 113:1,” Arnold said.

Ells stepped down earlier this year and was replaced in March by former Taco Bell boss Brian Niccol.

Another worry with the new disclosures has centered on whether publishing a median compensation number would contribute to discontent among workers unaware they were being paid less than their peers.

“Half of the employee population is making less than that median,” said Jonathan Marks, also an attorney at Davis Graham & Stubbs. “That was a big constituency no one was thinking about.”

Rees counters that employees already know what they make and have a good sense of what those around them make, so the median number shouldn’t come as a surprise. Those working at public companies can easily find out what the top executives make.

It took eight years for the ratio to see the light of day as the SEC hammered out numerous technical details, such as who exactly is the median worker, what time frame should be included when measuring compensation and how to handle foreign workers paid in different currencies.

That last issue was a big one for Denver-based Western Union, the money-transfer giant with a presence in almost every country. Its pay ratio was second highest after Chipotle at 292, based on compensation of $9.7 million for CEO Hikmet Ersek and median worker compensation of $33,278.

Western Union CEO, Hikmet Ersek, during an interview at the company headquarters in Douglas County, Colorado on April 28, 2010.
Craig F. Walker, The Denver PostWestern Union CEO, Hikmet Ersek, during an interview at the company headquarters in Douglas County, Colorado on April 28, 2010.

Supporters argue median worker pay numbers and the ratio are useful because they tell investors and board members how personnel and compensation policies at a given company compare to rivals and industry standards.

Boards rely on peer group studies when setting CEO pay, a major reason for the escalation in executive compensation, Rees said. So why can’t the same approach be done for determining worker pay?

“For so long, we have created this myth of the superhero CEO who is the sole guardian of the company’s fortune,” he said. “The best CEOs are team leaders. And companies that pay their workers well do better over the long term.”

Some interesting insights were provided by the companies that went beyond the minimum disclosure. At Re/Max, Liniger hasn’t taken any salary of compensation since the company went public in 2013, and the company’s employees are both well paid and well played.

Normally, golf club memberships, when they are offered as a perk, are reserved for top executives. But Re/Max estimates the typical corporate employee, not to be confused with agents of franchisees out in the field, received $2,400 in the use of a golf course owned by Dave and Gail Liniger.

While it is still early, the CEO pay ratios coming up in Colorado proxies are lower than prior estimates and what other national surveys are finding.

The AFL-CIO Executive Pay Watch calculated a CEO-to-worker pay ratio in 2016 of 347, based on the pay of S&P 500 company CEOs versus rank-and-file worker pay reported by the U.S. Bureau of Labor Statistics. That is up from 42 in the early 1980s.

Equilar surveyed 350 clients to get a jump on the ratio and the median among respondents was 140, said Dan Marec, director of content at the compensation consulting firm. Equilar is gathering ratios for companies in the Russell 3000, which includes more small companies than the S&P 500, and the median is tracking around 72.

As a general rule, smaller companies have lower ratios than larger ones, Marec said. And natural resource and technology companies tend to pay their workers more, which also contributes to a lower ratio.

Those two things are working to keep Colorado’s corporate universe more egalitarian when it comes to pay practices than the country as a whole. But there is a caveat. The Liberty Media group of companies, known for having some of the highest executive pay in the state and nation, still haven’t reported. Denver-based DaVita Inc. has not made its filing, nor has Vail Resorts.

As in Colorado, pay ratios nationally are all over the place, varying based on the industry, the business model and the size of the company. The fattest ratio found so far is Weight Watchers at 5,908 to 1, Marec notes.

Now, debate is raging among Democrats and Republicans over whether the banking regulations under Dodd-Frank should be repealed, but the CEO pay ratios appear safe for now.


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