April 29, 2020

Farient CEO Pay Ratio Tracker Update – April 29, 2020

Traditional Retail and a Tech Giant: Pay Ratios of Best Buy and Twitter

Welcome to the seventh installment of Farient’s Pay Ratio TrackerTM update. Each week, we focus on the companies with the highest and lowest CEO-to-median-employee pay ratios. This week, we explore the highs and lows of the second week of April’s pay ratio disclosure with Best Buy (BBY) and Twitter (TWTR). 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.

Best Buy: Expert Service. Unbeatable Pay Ratio

Best Buy (BBY), the $44 billion multinational retailer, has been a go-to for consumer electronics purchases for decades. Last week, the Company reported a pay ratio of 438:1, the highest of all companies reporting last week.

Why So High?

In June of 2019, long-time Best Buy veteran Corie Barry was tapped to replace the outgoing CEO and received a $5.5MM equity award at the time of the promotion. Since Barry was hired halfway through 2019, her pay was annualized for the purposes of the pay ratio to reflect what it would have been had she served as CEO for the full year. Although high, Best Buy’s CEO pay and pay ratio both declined in 2019, as a result of Barry’s annual salary and target equity awards both being set slightly below the levels of the previous CEO. In spite of the decrease, CEO pay remains the driver of BBY’s high pay ratio, as the Company’s median employee pay of $27,005 was slightly above that of the average retailer in 2019.

Twitter: 140 Characters and a $1.40 Pay Plan

Twitter (TWTR) is a $3.5 billion social networking platform that has become a staple of modern mass communication and internet culture. The Company was founded by Jack Dorsey, who served as the Company’s first CEO until 2008 and then resumed the position in 2015. As CEO, Dorsey takes a $1.40 salary and does not participate in any annual or long-term incentive plans; his only other compensation since 2015 was for a security detail. However, Dorsey holds just over 2% of Twitter’s outstanding shares, which have a market value of $413 million. With the median of Twitter’s 4,000 employees earning $213,155 annually, the CEO pay ratio is 0:1. Notably, the majority of Dorsey’s wealth is in Square, the payment and point-of-sales solution of which Dorsey is also founder and CEO; Dorsey recently pledged to move $1B of his Square equity (nearly a third of his total wealth) to a COVID-19 relief fund.

Farient’s Takeaway:

A CEO’s pay frequently depends heavily on his or her tenure with the Company. A CEO like Jack Dorsey, who is also a founder, will likely already have a high level of equity in the Company and will therefore take lower compensation than someone who is new to the position. A new CEO who is hired externally will likely require a large equity grant to establish a baseline of ownership in the company, but one who is internally hired, like Corie Barry, may receive a mid-sized grant to recognize a higher level of responsibility. As always, investors should be aware of all factors at play when looking at a company’s pay ratio.

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.

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