March 26, 2020
Farient CEO Pay Ratio Tracker Update – March 26, 2020
Welcome to the third installment of Farient’s Pay Ratio Tracker™ update. Each week, we focus on the companies with the highest and lowest reported CEO to median employee pay ratios. This week, we explore the highs and lows of March’s pay ratio disclosure with ManpowerGroup and Berkshire Hathaway. As a reminder, the CEO to median employee pay ratio is one of the provisions from the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act implemented in 2018.
Temporary Employees and the Frugal Executive: CEO Pay Ratios of ManpowerGroup and Berkshire Hathaway
ManpowerGroup: Workforce Structure Drives High Pay Ratio
ManpowerGroup (MAN) is a $22 billion company that provides staffing solutions to more than 400,000 clients, and is the third-largest staffing firm in the world behind Swiss firm Adecco and Dutch firm Randstad. MAN has a globally distributed employee population of 600,000, nearly 100% of which are “associates” assigned to temporary engagements.
In calculating MAN’s 2020 pay ratio, the company invoked Instruction 2 to Item 402(u), allowing it to use the same employee identified in 2017 as the median. This employee is an associate located in Israel who worked as a caregiver for part of the year and earned a total annual compensation of $5,625. Given the CEO’s 2019 compensation of $12.5MM, MAN published a CEO Pay Ratio of 2,230 to 1.
MAN goes on to further calculate CEO Pay Ratio against the 5% of its employee population that are “permanent employees,” which it believes is more representative of its workforce. Under this alternative calculation, the median employee was a junior sourcing consultant in one of the branch offices in Belgium with annualized compensation of $55,008. This calculation yields a pay ratio of 228.0 to 1.
Berkshire Hathaway: The $100,000 Man
Berkshire Hathaway (BRK) is a $248 billion multinational conglomerate holding company led by Warren Buffett since the 1960s. Famously frugal, Mr. Buffett’s annual compensation has been $100,000 for more than 25 years with no bonus or any other forms of equity. Despite that, he is the fourth wealthiest person in the world with a net worth of $89 billion (December 2019).
In calculating its 2020 pay ratio, BRK noted that calculating median employee pay across the 391,000 employees in its various holdings is a difficult task, and given the structure of Mr. Buffett’s compensation, provides “little, if any, useful information to its shareholders.” As such, BRK also invoked Instruction 2 to Item 402(u) as MAN did, using the same employee identified as the median in 2017. This median employee had compensation of $65,740, which compared to Mr. Buffets total compensation ($100,000 salary and $274,773 of security services) yielded a ratio of 5.7 to 1.
CEO pay ratios, particularly at the extremes, are influenced by company-specific situations and the industries in which they operate. Our two companies from this week’s Pay Ratio Tracker are good examples. Like MAN, some companies will try to create an “apples-to-apples” comparison that they believe better represents the CEO to median pay at their companies. As always, informed investors should read the disclosures to understand the details of the primary calculation and any alternate calculation that the company posits as a more accurate representation of its situation.
Farient‘s CEO Pay Ratio Tracker™ provides updates on CEO to median employee pay ratio throughout the proxy season. In addition, for real-time information on Say on Pay votes, please visit our Say on Pay Tracker™ at Farient.com.