Learning from the For-Profit Sector: the CEO Pay Ratio

Cooperatives’ unique design uniting the member-owner as the single focus for corporate performance can provide some protections versus the potential conflicts of interests that every public corporation must balance between shareholders and customers. Regulation and rules for public companies are intended to promote this balance. One way this is done is through mandatory public disclosures in annual reports.

These disclosures may also provide insight about how cooperatives can better account for their stewardship of members’ interests.

I will be sharing a series of examples that credit union leaders may consider as we enter the annual member meeting season.

One example is the “CEO Pay Ratio”, a disclosure required of public companies by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This SEC rule requires that the relationship of the median of the total of all annual compensation of all employees be compared to the total annual compensation of the CEO.

The following is the disclosure for the CEO of Southwest Airlines (page 42, 2018 annual report):

  • The total annual compensation of the company’s median employee was $78,494;
  • The total annual compensation of the company’s CEO was $7,726,455; and,
  • The ratio of the total annual compensation of the CEO to the median employee’s total compensation was 98.4 to 1.

Would such a comparison be useful for monitoring credit union CEO compensation trends? For members to have prior to the annual meeting whose primary purpose is to approve the election of the Board which oversees the CEO’s role? Let me know what you think in the comments below.

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