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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →A CEO-to-worker pay ratio compares a company CEO’s annual total compensation with the annual total compensation of the company’s median employee. It can summarize the distance between those two amounts, but it is not a complete picture of employee pay, workplace inequality, company performance, or why the gap exists. To interpret one, read the ratio alongside the compensation figures, the company’s method and the makeup of its workforce.
What does a CEO-to-worker pay ratio show?
Under the U.S. Securities and Exchange Commission’s pay-ratio disclosure rule, a covered company reports three figures: the median of annual total compensation for employees other than the CEO, the CEO’s annual total compensation, and the ratio between them. A ratio of 100-to-1 means the reported CEO amount is 100 times the reported median-employee amount for that disclosure; the company must disclose the two dollar amounts as well as the ratio. The rule was adopted in 2015. The SEC’s adoption announcement describes the required disclosure.
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The ratio is therefore a comparison of two points, not a measure of the entire pay structure. The median identifies the compensation level at the midpoint of the employee population used in the calculation: about half of the included employees fall on either side of that point. It does not show how many employees earn near the median, how far the lowest-paid employees are from it, or how compensation differs by occupation, location, or seniority. The median employee is one point of reference, not a description of every worker’s experience.
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Nor does the ratio explain the reason for the difference. It does not, by itself, show whether CEO pay reflects a particular compensation plan, whether worker pay is adequate, or how well the company performed. Those questions need other evidence. The number is best treated as a compact signal about relative compensation—not a standalone verdict on a company.
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How is the median employee and their compensation calculated?
SEC rules give companies substantial flexibility in identifying the median employee. A company may consider its full employee population, use statistical sampling, use another reasonable method, or combine these approaches. It may also use reasonable estimates when identifying the median and calculating compensation. The company must determine its own median employee; it cannot substitute an industry wage estimate. The SEC’s Division of Corporation Finance guidance explains these methods and the role of estimates.
This flexibility matters because the reported median depends on how the company defines and measures the population and compensation. A company that uses sampling is still required to identify its own median, but the method and reasonable estimates it uses are part of the context for interpreting the result. The SEC Chair acknowledged this balance at adoption: “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.” The quote describes the rule’s design; it is also a reminder to read a company’s explanation rather than assume every ratio was produced in precisely the same way.
Once identified, the median employee’s annual total compensation is calculated under the same executive-compensation rules used for the CEO, though reasonable estimates are allowed for elements of the median employee’s compensation. The disclosed figure is not necessarily salary alone. Depending on the compensation elements involved, it can include forms of pay beyond wages. The company reports the dollar amount as well as the ratio, so readers can see whether a ratio reflects a comparatively high CEO figure, a comparatively low median figure, or both.
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Who is included in the employee population?
In general, the rule covers U.S. and non-U.S. full-time, part-time, temporary, and seasonal employees, subject to specified exceptions. Companies may exclude certain non-U.S. employees under a de minimis exemption capped at 5 percent of total employees, or under an exemption connected to data privacy law conditions. The company’s filing should explain applicable exclusions. Because the permitted population can include workers in different countries and employment arrangements, the workforce boundary is an important part of the disclosure—not a minor technical detail.
The calculation does not allow companies to convert part-time workers to full-time equivalents or annualize the pay of temporary and seasonal workers for the required ratio. As a result, a workforce with many part-time, seasonal, or temporary roles can influence the median differently from a workforce made up mostly of full-time employees. Likewise, a global company’s mix of countries and permitted exclusions can shape which employees are represented in the calculation. These differences do not make a ratio unusable, but they do make it risky to compare figures without checking who was counted and how compensation was measured.
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How often is the median recalculated?
A company may identify its median employee once every three years if it reasonably believes there has been no significant change in its employee population or compensation arrangements. It may therefore use the same median employee in more than one reporting year rather than selecting a new one every year. When looking across years, check the company’s explanation for whether it refreshed the median employee or relied on the permitted prior identification; do not assume that a new median person was selected in each report.
Which companies must disclose a ratio?
The rule does not cover every company that might be described informally as public. The SEC release lists exceptions that include smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers, and registered investment companies. A missing ratio is not, by itself, evidence that a company has failed to comply; first check whether the rule applies to it.
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Annual total compensation can include stock and option awards, so the ratio does not necessarily represent cash received during the year. In the compensation analysis described by the Associated Press, stock and option awards were valued at grant as reported in proxy filings; their eventual value can differ, sometimes substantially, from the estimate recorded at grant. That is a caveat about the AP/Equilar analysis, not proof that every company’s ratio uses precisely the same award treatment. See the AP’s explanation of its CEO-pay calculation.
When reading a filing, distinguish the reported compensation amount from cash paid or realized in that year. The value of an award at grant and the value an executive may eventually receive are different measures. A ratio built from reported annual total compensation answers a question about those reported amounts; it should not automatically be read as a comparison of cash in hand. If the award component is important to your interpretation, look at the company’s compensation disclosure and the basis used for the particular analysis you are reading.
Can you compare pay ratios between companies?
You can compare the disclosures, but a ratio is not a standardized cross-company ranking. Companies can use different reasonable identification methods, estimates, and permitted exclusions, while their workforces may differ substantially in geography, job mix, and employment type. A lower ratio does not automatically mean workers are better paid, and a higher ratio does not establish why a gap exists. A ratio alone also cannot tell you whether the two companies’ median employees have comparable jobs or working arrangements.
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For a more meaningful comparison, examine the underlying amounts and context rather than sorting companies by the ratio alone:
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problems- Fiscal year and employee date: Check which fiscal year the figures cover and when the company identified its employee population. A prior-year median employee may still be used when the rule’s conditions for doing so are met.
- Workforce geography and mix: Look at whether the workforce is global or concentrated in one country, and at the mix of full-time, part-time, temporary, and seasonal employees. Note any permitted non-U.S. exclusions.
- Median compensation: Compare the median employee’s disclosed annual total compensation, not just the ratio. The ratio does not show the dollar amount on its own.
- CEO compensation: Review the CEO amount and the compensation components included, including stock or option awards. Reported award value may not equal cash received or eventual realized value.
- Method and exclusions: Read the company’s description of its identification method, assumptions, estimates, cost-of-living adjustments, and any workforce exclusions. These are part of the basis for the number.
- Database statistic: If using a compiled dataset, check its population, year, missing-company treatment, and whether a reported summary is an arithmetic average, a median, or another statistic.
Proxy-statement figures can also differ depending on the methodology used for CEO compensation. AFL-CIO says the CEO pay used in its ratio entries may differ from the CEO’s Summary Compensation Table total because companies use differing methods; for companies with multiple CEOs in a year, its database may represent the highest-paid CEO. Its terms and data sources page describes the database, which draws on SEC-filed proxy statements and annual reports and includes more than 3,900 corporations. These notes are useful when moving from a company filing to a compiled database: the database reports company-disclosed figures and has its own stated conventions.
How should you read a published average?
Always attach a publisher, year, population, and calculation method to a headline statistic. For example, AFL-CIO’s 2024 Executive Paywatch page reported an average CEO-to-worker ratio of 268-to-1 for S&P 500 companies in 2023. AFL-CIO’s methodology page describes the S&P 500 average as the arithmetic mean of disclosed company ratios. That figure is an average for that population and year—not the median company’s ratio, a current ratio, or a measure of all U.S. businesses. The dated figure appears on AFL-CIO’s Company Pay Ratios page.
An arithmetic average combines the reported ratios in the population; it does not say that a company at the midpoint has that ratio. In particular, a headline average should not be presented as the ratio of a typical company without explaining what statistic it is. The database’s coverage and handling of available company data also matter when interpreting a summary. AFL-CIO’s 2026 methodology page says its average CEO compensation figure for 2025 draws on 499 S&P 500 companies with available data as of July 2026; that is a distinct CEO-pay statistic, not the 268-to-1 ratio statistic.
A company-level outlier also needs context. The AFL-CIO page displays Tesla at 2,522,203-to-1, with median worker pay of $57,243. Treat those as the company-disclosed entry shown in that database, not as an independently recalculated estimate or a universal comparison. Unusual compensation or workforce circumstances can affect very high ratios, so consult the company filing and the database’s notes before drawing conclusions from an outlier. A striking number is a reason to inspect the underlying disclosure, not a reason to skip it.
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What the ratio cannot tell you
A ratio reduces a company’s compensation disclosures to a comparison between the CEO and one employee at the median. It does not reveal the distribution of pay across the workforce, how compensation varies between roles or locations, or what a typical employee experiences. It also cannot identify the causes of the gap or establish whether two companies are genuinely comparable. It is not a measure of all U.S. businesses, nor does it show how a company’s pay practices compare with its performance.
The practical reading is straightforward: treat the ratio as an entry point. Pair it with the disclosed CEO and median compensation amounts, the company’s explanation of its method and exclusions, and the workforce context. If the figure comes from a database or a headline average, also check who compiled it, which year and companies it covers, and what statistic it reports. That gives the number its proper limits while preserving its value as a concise comparison.
As SEC Chair Mary Jo White said when the rule was adopted in 2015, “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.” That flexibility is central to interpreting the number: the disclosed method and workforce context belong beside the ratio, not in the fine print of your analysis.
Frequently Asked Questions
What does a CEO-to-worker pay ratio show?
It compares the CEO’s reported annual total compensation with the reported annual total compensation of the company’s median employee. The company also discloses both dollar amounts. It is a comparison of two amounts, not a complete picture of pay across the workforce.
How is the median employee pay figure calculated?
The company identifies its own median employee using its employee population, statistical sampling, another reasonable method, or a combination, and may use reasonable estimates. It then calculates that employee’s annual total compensation under the same executive-compensation rules used for the CEO, with reasonable estimates allowed for elements of the median employee’s compensation.
Can I compare pay ratios between companies?
You can compare disclosures, but not as if they were a fully standardized ranking. Check the fiscal year, workforce geography and mix, median and CEO compensation amounts, methods, estimates and exclusions before interpreting a difference.
Does a pay ratio show how much cash the CEO received that year?
Not necessarily. Annual total compensation can include stock and option awards reported at grant, and their eventual value can differ from the grant-date estimate. Check the compensation basis in the filing or analysis.
Do all public companies have to report a CEO-to-worker ratio?
No. SEC exceptions include smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers and registered investment companies. A missing ratio alone does not establish noncompliance.
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The Bottom Line
A CEO-to-worker ratio is a useful shorthand for comparing reported CEO compensation with a company’s median employee compensation, but it is not a complete account of pay or inequality. Read the two dollar amounts, the company’s method and workforce context—and check the year and calculation behind any published average.
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