McDonald’s might have some explaining to do.
The fast-food chain has one of the highest ratios of CEO pay to that of the company’s average worker, at 644 to 1, according to data compiled by Bloomberg. Under a requirement approved last week by the U.S. Securities and Exchange Commission, public companies such as McDonald’s will have to disclose a similar metric annually, handing new ammunition to critics of C-suite pay packages.
McDonald’s former chief executive officer isn’t even close to topping the list of highest-earning U.S. execs last year, but that doesn’t matter. The figure the SEC is requiring measures CEO pay against the median compensation of all employees, an unfavorable ratio when your workforce includes a lot of burger flippers and fry cooks.
Some companies where top managers earned millions more last year than the $7.3 million paid to McDonald’s Don Thompson (who stepped down in March) actually have lower ratios. Examples include JPMorgan Chase and hospital operator Community Health Systems, both of which have pay gaps exceeding 200 to 1, which are still among the widest of all U.S. companies.
To be sure, estimates relying on data that are currently available will probably differ from what companies report when the SEC rule kicks in two years from now. For instance, the SEC is allowing companies to omit a limited percentage of workers overseas, where wages might be lower.
Bloomberg estimated average worker pay by identifying businesses’ reported salaries and benefits expenses, and dividing that by the total number of workers. One issue with using average pay to draw conclusions about how much CEOs make compared with their workforce is that the SEC rule is based on median compensation, the level at which half the workers earn more money and half earn less.
On the other hand, companies like McDonald’s, where starting wages are just a dollar over the local minimum wage, are almost certain to report pay ratios that will shock some employees and, perhaps, investors.
“I suppose the McDonald’s CEO, who has a lot of people working in McDonald’s restaurants, would have a big ratio and would have a lot of people at the bottom end,” says John Engler, president of the Business Roundtable, a trade group that opposes the SEC rule.
Pay at McDonald’s is consistent with employees’ roles and responsibilities, according to spokeswoman Becca Hary. The company is proud of recent changes it’s made, including offering paid time off and helping more workers pay for college, she says.
Joe Evangelisti, a spokesman for JPMorgan, declined to comment.
Corporations are unlikely to love the new SEC requirement, which stems from the 2010 Dodd-Frank Act. Many fear it will be used by unions and activists to shame CEOs over their pay.
Average CEO pay at the 350 largest U.S. companies by revenue surged 997 percent from 1978 to 2014, while the compensation of non-supervisory employees rose 10.9 percent, according to the Economic Policy Institute, a research group that advocates for workers.
“It really undercuts the SEC itself and its credibility, because this is not something that shareholders care about,” CIT Group CEO John Thain told Bloomberg Television last week. “This is a populist, political statement.”
Thain is familiar with populist uprisings. While CEO of Merrill Lynch during the financial crisis, his decision to spend $35,000 on a commode as part of an office remodeling became a symbol of public outrage against bankers.
Editor's note: This story has been updated with a response from JPMorgan and the increase in average CEO pay in 12th paragraph.