The salary gap between CEOs and employees is one of corporate America’s most hotly debated topics. There are countless articles about why “wage inflation” has led to higher CEO salaries down the line, but it’s not as black and white as you might think.

The idea of the CEO pay ratio is to critique the amount of money CEOs are receiving versus what they are contributing to the company. To some, the pay ratio may sound controversial. But there’s a large population that believes this is a necessary discussion to take place.

Meanwhile, a salary gap between CEOs and workers is an issue that has been in the spotlight, ranging from media reports to shareholder resolutions. CEO pay gaps are nothing new and have been increasing for years. The average U.S. CEO receives 344 times the salary of an average employee.

This means that a CEO Pay Ratio is over $11 million annually, whereas an average worker makes just over $30,000 per year, which concerns many people and causes them to wonder why such gaps are increasing in the first place. As companies grow, so do the pay disparities between employees and CEOs.
Let’s look at the ways to differentiate the salary breach between CEOs and employees.

1 – Be Transparent

In 2013 Buffer adopted a policy of transparent salaries for every employee. Everyone has access to view the salaries of all company employees. The business discloses the figures for each employee and the method it employs to calculate those salaries.

This is why transparency is important, as it builds trust and helps them feel like they’re part of something bigger than themselves, which can help with morale and engagement. Employees who feel like their work is appreciated will be likely to stick around, and if it’s not appreciated, they may decide that it isn’t worth sticking around at all (which could also affect employee retention).

Transparency also helps employees understand what they’re getting paid compared with other organizations in their industry or field. This can help you identify areas where you need improvement to continue improving them over time instead of letting them slip away due to poor compensation practices.

2 – Compensation should be linked to performance, which includes environmental, social, and governance (ESG) performance

Some ESG topics have gained significantly more attention than others, in addition to the findings showing an increase in the adoption of such targets, the overall percentage of S&P 500 companies that include DE&I (diversity, equity, and inclusion) aims in executive compensation increased from 35% to 51% between 2020 and 2021.

This is why you can use several methods when it comes to ESG performance. For example, you could measure employee engagement and retention by looking at the ratio of shares purchased by employees for their accounts (commonly known as “buyback”) compared with shares sold to investors or other parties. Another way is to factor environmental and social responsibility into how much money your company pays out in the form of dividends or stock repurchases, which reduces the amount of debt on your balance sheet, a good thing if you’re trying to grow your business.

Tying compensation with these metrics will help attract top talent and retain them over time because they’ll see that their hard work is rewarded with fair salaries and benefits; this also improves the corporate reputation as an ethical place where people want to work.

3 – Invest in the learning and skill process

It is true that to address this gap, companies need to invest in the learning and skill process. As a leader, you can help by building a continuous learning culture, ensuring that CEOs spend time learning and developing their skills. A good CEO should be able to demonstrate their skills regularly, either through training programs or through volunteering for projects outside of work.

This means that every employee at your company has access to the training and development resources needed to grow their skills.

You can also use these resources to help employees develop soft skills like communication, negotiation, leadership, and collaboration. These are all valuable assets for any employee who plans to advance in their career or wants to be more effective at work. The more skills and experience the worker gets, the more they move forward towards success.

4 – Ensure that the CEO pay ratio aligns with your industry peers

Some businesses may be unable to eliminate the pay gap, but making sure that the CEO Pay ratio is in line with your industry peers should be considered.

It’s important to pay attention to the industry pay ratio, which is the difference between CEO and employee compensation. It may be time for adjustments in how much CEOs make.

Once you’ve determined the CEO-to-employee ratio, you can begin calculating the gap between your company’s salary structure and its competitors by looking at its most recent annual reports or press releases. If possible, use an internal compensation calculator. These programs can help determine how much someone should be paid based on job title and years of experience. However, be careful not to rely too heavily on them because they don’t consider variables like bonuses or stock options.

Conclusion

There is a significant pay disparity between CEOs and their employees. Still, companies can help reduce this pay disparity by paying their employees fairly. Light Money is here to help you understand your worth as an employee and achieve better outcomes for your future. Remember to stop by and talk to them if you want to learn more.