HOW much should company bosses be paid relative to their employees? For investors, the magic number appears to be well into triple figures. According to new filings submitted to the Securities and Exchange Commission (SEC), America’s largest publicly listed firms (those worth at least $1bn) on average paid their chief executives 130 times more than their typical workers in 2017. The figures are being disclosed for the first time as a result of the Dodd-Frank act, a financial-reform law with a provision requiring listed firms to report the annual compensation of their chief executives, that of their median employees, and the ratio of the two.

Median and
CEO pay by sector, 2017, $


Market cap
$ bn







50
300
700


An analysis by The Economist of filings submitted by over 700 large public companies shows that the data should not be taken at face value. Across the companies in our sample, which paid chief executives a median salary of $9m and rank-and-file employees a median of $69,000, pay ratios are heavily influenced by factors such as company size and industry.

Market cap and CEO pay, 2017, $

Banks and financials

Market capitalisation, log scale

Energy

Market capitalisation, log scale

Software and services

Market capitalisation, log scale
Market capitalisation, log scale

Whether a company relies on foreign, part-time or temporary labour can also skew the results. After controlling for such factors, much of the remaining variation in pay ratios is driven by levels of chief-executive pay alone, a metric which has been disclosed to investors for years.

So far, interest in the pay ratios among investors has been fairly limited. Liberal politicians have proved more enthusiastic. In 2016, in anticipation of this year’s disclosures, lawmakers in Portland, Oregon introduced a 10% business-tax surcharge on firms with pay ratios greater than 100:1, and a 25% surcharge on those with ratios above 250:1. Lawmakers in at least six states, including California, Illinois and Massachusetts, have considered policies of this sort, too. Such laws would be impossible to implement if the pay-ratio rule is scrapped. In October, in response to an executive order from President Donald Trump to review America’s financial regulation, the Treasury called on Congress to do just that, writing that the information is “not material to the reasonable investor for making investment decisions”.

Sources: US Securities and Exchange Commission; Thomson Reuters; The Economist