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A CEO-to-worker pay ratio compares a company CEO’s annual total compensation with the annual total compensation of the employee at the middle of the company’s workforce pay distribution. It is a compact measure of relative compensation—not a complete picture of worker pay, inequality, company performance or why the gap exists.
To interpret one, look beyond the headline ratio: check the fiscal year, the company’s median employee pay, who was included in its workforce, and how it identified and valued compensation. SEC rules give companies flexibility in making those calculations, so ratios are not automatically standardized comparisons.
What does a CEO-to-worker pay ratio measure?
For companies covered by the SEC rule, the disclosure contains three figures: the median of annual total compensation for employees other than the CEO, the CEO’s annual total compensation, and the ratio between those two compensation amounts. In plain terms, a ratio of 100:1 means the CEO’s reported annual total compensation is 100 times the reported annual total compensation of the company’s median employee.
The median is the middle employee in the pay distribution after employees are ordered by the measure the company uses. Half of the employees are above that point and half below it, subject to the company’s permitted method for identifying and calculating the median. It is not the average of all employee compensation, nor does it describe any particular employee’s experience.
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The SEC’s 2015 rule uses annual total compensation as defined under existing executive-compensation disclosure rules. The median employee’s compensation is calculated using the same rules used for the CEO, with reasonable estimates permitted for elements of the median employee’s compensation. The disclosure therefore compares specified compensation measures; it is not necessarily a comparison of cash pay deposited during the year. SEC: SEC Adopts Rule for Pay Ratio Disclosure
Who has to disclose a ratio?
The rule does not cover every company that might casually be called public. The SEC’s listed exceptions include smaller reporting companies, emerging growth companies, foreign private issuers, issuers reporting under the Multijurisdictional Disclosure System (MJDS), and registered investment companies. Whether a company reports a ratio depends on its status under the rule, not simply on whether its shares are publicly traded. SEC: SEC Adopts Rule for Pay Ratio Disclosure
How does a company identify its median employee?
The SEC does not require every company to calculate the median in one identical way. Its Division of Corporation Finance says a company may use its full employee population, statistical sampling, other reasonable methods, or a combination of them. Companies may also use reasonable estimates to identify the median and calculate compensation. Each company must determine its own median; industry wage estimates cannot stand in for the company’s workforce. SEC Division of Corporation Finance: Guidance on Calculation of Pay Ratio Disclosure
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Which employees count?
In general, the rule covers U.S. and non-U.S. full-time, part-time, temporary and seasonal employees, subject to specified exceptions. Companies cannot adjust part-time employees’ compensation as if they worked full time, or annualize the pay of temporary and seasonal employees, when calculating the required ratio. Consequently, the presence and pay of part-time, seasonal and temporary workers can influence the median. SEC: SEC Adopts Rule for Pay Ratio Disclosure
The rule also permits limited exclusions for certain non-U.S. workers. One is a de minimis exemption capped at 5 percent of the company’s total employees; another is tied to conditions involving data privacy laws. A company using an exclusion should explain it in its disclosure. When comparing companies, do not assume that their reported employee populations have identical geographic coverage.
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 identified median employee for more than one reporting year rather than selecting a new person every year. SEC: SEC Adopts Rule for Pay Ratio Disclosure
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Why the ratio is not a complete account of pay
A ratio compresses a company’s reported CEO compensation and one employee’s median compensation into a single comparison. It does not show the full distribution of employee pay: how many workers are near the median, how compensation differs among occupations or locations, or how many employees earn substantially more or less. Two companies could have the same ratio while having very different workforces and pay patterns.
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It also does not explain the causes of the difference or establish whether the company is performing well. The ratio is a disclosure metric, not a performance measure or a complete analysis of compensation practices. Because methods, estimates and permitted exclusions can vary, the number alone cannot establish that two companies are directly comparable.
Stock awards can complicate the comparison
Annual total compensation can include stock or option awards. For the pay analysis described by the Associated Press and Equilar, those awards were valued at grant as reported in proxy filings; the awards’ eventual realized value can differ widely from the company’s estimate. This is a caution about that analysis, not proof that every company’s ratio uses an identical valuation approach. A reported total that includes equity awards should not automatically be read as cash received in that year. Associated Press: How AP and Equilar calculated CEO pay
How to compare ratios responsibly
A ratio can be a useful starting point, but treat it as a company-reported measure with a particular year, employee population and calculation method—not as a standardized league table. Before drawing a comparison, check the following items in the company’s proxy statement and any database displaying the figure.
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- Fiscal year and employee date: Make sure the figures refer to the same fiscal year, and note the date the company used to identify its employees.
- Workforce geography and composition: Check whether the workforce is global or concentrated in one country, and whether it includes a substantial mix of full-time, part-time, temporary or seasonal employees. Look for disclosed non-U.S. exclusions.
- Median employee compensation: Compare the dollar amount as well as the ratio. A ratio without its underlying median can conceal important differences in the comparison.
- CEO compensation and pay components: Review the disclosed CEO amount and whether stock or option awards are included and valued at grant. Do not assume the figure equals cash received.
- Method and assumptions: Read the company’s explanation of its approach, including sampling, estimates, cost-of-living adjustments and exclusions.
- Database statistic and coverage: Find out whether a published summary is an arithmetic average, a median or another statistic; check its year, company population and treatment of missing company data.
AFL-CIO’s Executive Paywatch says the displayed ratios and median employee pay come from company proxy statements. It cautions that the CEO pay used for a ratio can differ from the CEO’s displayed Summary Compensation Table total because companies use different methodologies. It also notes that a company with multiple CEOs during the year may be represented by its highest-paid CEO. These database conventions matter when interpreting an entry or comparing it with another source. AFL-CIO: Terms and Data Sources – 2026
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What does the 268-to-1 figure mean?
AFL-CIO’s 2024 Executive Paywatch page reports an average CEO-to-worker pay ratio of 268-to-1 for S&P 500 companies in 2023. AFL-CIO’s methodology page describes its S&P 500 average as the arithmetic mean of disclosed company ratios. It is therefore an average for that population and year—not the median ratio, not a figure for all U.S. businesses, and not a current-year estimate. AFL-CIO: Company Pay Ratios – 2024 AFL-CIO: Terms and Data Sources – 2026
The same database page displays a Tesla entry of 2,522,203:1 and median worker pay of $57,243. Those are the company-disclosed figures shown by AFL-CIO, not an independently recalculated comparison or a universal benchmark. An unusually high ratio warrants checking the underlying company filing and database notes before attributing it to a particular cause; a headline number alone does not establish why it is an outlier. AFL-CIO: Company Pay Ratios – 2024
AFL-CIO says its database draws on SEC-filed company proxy statements and annual reports, covers more than 3,900 corporations, and uses company-disclosed ratio and median-pay data. Its methodology page also reports an average CEO-compensation figure for 2025 based on 499 S&P 500 companies with available data as of July 2026. That is a separate CEO-pay statistic; it is not the source or definition of the 268-to-1 ratio for 2023. AFL-CIO: Terms and Data Sources – 2026
How to find the context behind a reported ratio
- Locate the company’s proxy statement. The ratio and its accompanying explanation are part of the company’s compensation disclosure. Read the filing for the same fiscal year as the figure you are evaluating.
- Record the three disclosed amounts or measures. Note the CEO’s annual total compensation, the median employee’s annual total compensation and the reported ratio. Preserve the company’s stated units and year.
- Read the methodology explanation. Look for how the company identified the median, whether it sampled employees, what compensation measure it used, and any estimates or cost-of-living adjustments.
- Check the population and exclusions. Note the date employees were identified, the geographic reach of the workforce and any exclusions. Consider the mix of full-time, part-time, temporary and seasonal staff.
- Verify the statistic before using a summary. If a website gives an average or highlights an outlier, check the population, year and calculation method it states, then consult the company filing for the entry.
SEC Chair Mary Jo White summarized the design trade-off 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 why the company’s stated method is essential context, rather than optional fine print. SEC: SEC Adopts Rule for Pay Ratio Disclosure
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Frequently Asked Questions
Does a 100-to-1 ratio mean the CEO earned 100 times as much as every worker?
No. It compares the CEO’s annual total compensation with the annual total compensation of the company’s median employee—the person at the midpoint of the workforce pay distribution under the company’s method. It does not report what every employee earned or how pay is distributed around that midpoint.
Can I compare pay ratios between companies?
You can compare them as starting points, but they are not standardized rankings. Check that the fiscal years align, then compare the median employee pay and CEO compensation amounts, workforce geography and composition, and each company’s disclosed method, assumptions, estimates and exclusions. A published average also needs its year, population and calculation method.
Is the pay ratio the same as the company’s average employee pay?
No. The disclosure uses the annual total compensation of the median employee, not the average compensation of all employees. The median identifies the midpoint; it does not show how many employees are clustered near that level or how pay varies across jobs and locations.
Does a reported CEO compensation amount mean that much cash was received in that year?
Not necessarily. Annual total compensation may include stock or option awards. In the AP/Equilar analysis described here, those awards were valued at grant in proxy filings, and their eventual realized value could differ widely. Read the company’s stated compensation methodology before treating the total as cash pay.
The Bottom Line
A CEO-to-worker pay ratio is a useful snapshot of two reported compensation amounts, not a complete portrait of worker pay or a ready-made company ranking. Read the median pay, workforce context and calculation notes alongside the ratio—and treat averages and outliers as statistics for a specific population and year.
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