Top Michigan CEOs made 300 times more than employees

Top Michigan CEOs made 300 times more than employees
Jonathan Oosting, The Detroit News Published 12:00 a.m. ET April 15, 2019 | Updated 9:37 p.m. ET April 15, 2019

Correction: DowDuPont’s chief executive is Ed Breen and his 2017 salary compared with the median salary of DowDuPont employees is 175-1. A graphic misidentified the DowDuPont CEO and the pay gap ratio.

Lansing — Whirlpool CEO Marc Bitzer earned 578 times as much as his company’s median employee in 2018, while Lear Corp. CEO Raymond E. Scott made 987 times as much as a median employee at the auto supplier.

New filings required by the federal government show top executives at 12 of Michigan’s largest publicly traded companies earned, on average, 313 times as much as their median employees, who in some cases work outside the state in lower-wage countries or do not hold full-time jobs.

How the pay of certain Michigan chief executives compared with the company’s median employee for 2018.
How the pay of certain Michigan chief executives compared with the company’s median employee for 2018. (Photo: Detroit News graphic)

While critics contend the pay ratios can be unreliable, difficult to compute and costly for companies to calculate, labor organizations have championed the disclosure amid a national debate over pay equity.

“The pay disparities speak to the economic imbalance in Michigan,” said Ron Bieber, president of the Michigan AFL-CIO. “If we want to move our economy forward and create stability, we need to focus on raising wages for working people and bridging this gap.”

But getting a great chief executive is “priceless” for a company, said Edwin Locke, professor emeritus at the University of Maryland’s Robert H. Smith School of Business, who has criticized what he calls an “assault on CEO pay.”

The job is particularly important because if a chief executive does not “do the right things, the whole organization can go bust and other jobs with it,” he said. And like a sports superstar, a good CEO “is very hard to find.”

There is no “objectively correct” ratio between the highest and lowest paid workers at an organization, Locke said. “The objections are just emotional.”

HOW THEY COMPARE
How the pay of certain Michigan chief executives compared with the company’s median employee for 2018.
COMPANY MEDIAN CEO RATIO
Lear $10,063 $9,936,305 987-1
Whirlpool $20,485 $11,847,762 578-1
*DowDupont $78,835 $13,792,002 175-1
Masco $38,769 $11,636,439 300-1
*GM $74,487 $21,958,048 295-1
Ford $64,316 $17,752,835 276-1
Kellogg $46,948 $9,989,992 213-1
Stryker $68,841 $13,911,065 202-1
Penske $40,720 $6,824,351 168-1
DTE Energy $86,623 $10,986,808 91-1
Ally Financial $109,452 $9,607,777 88-1
Consumers Energy $109,100 $8,091,185 74.2-1
*2017 ratios because company has not yet filed 2018 report.
Source: Securities and Exchange Commission filings by companies

The CEO pay ratio disclosure is among a suite of annual accountability and executive compensation requirements for publicly traded companies under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Dodd-Frank was signed by former President Barack Obama in the wake of the 2008 global financial crisis. The Securities and Exchange Commission adopted disclosure rules in 2015 and first required pay ratio data last year.

Combat over comparisons

The U.S. Chamber of Commerce and other business groups fought the CEO pay ratio disclosure rule, arguing it produces a “fundamentally misleading statistic” that is unlikely to boost wages for low- or middle-class Americans but will cost U.S. companies billions of dollars to comply with.

“The stated intent of the pay ratio rule was to highlight income inequality in the United States, but in reality, it does little more than shame public companies over CEO pay packages deemed to be too high,” former chamber Senior Director of the Center of Capital Markets Competitiveness Brian O’Shea said in a 2018 analysis.

The Trump administration in 2017 recommended repealing the reporting requirement before it took effect, arguing the CEO pay ratio it is “not material to the reasonable investor for making investment decisions” and imposes “significant costs upon the public companies that are widely held by all investors.”

But union groups that pushed the SEC to finalize a rule required under Dodd-Frank have argued it is a vital tool for transparency. The national AFL-CIO created its own “Executive Paywatch” website to highlight the data.

Ron Bieber, president of Michigan AFL-CIO
Ron Bieber, president of Michigan AFL-CIO (Photo: Clarence Tabb Jr / Detroit News file)

“Look, our economy functions best when working folks earn a fair wage and have money to spend,” Bieber told The Detroit News. “You have wealthy CEOs becoming wealthier” while some Michigan residents still struggle to afford basic necessities, he said, pointing to a recent report by the United Way.

The SEC gave companies significant leeway to select their own methodology for identifying a median employee. As such, both the government and companies it regulates warn against direct comparisons between CEO pay ratios at different firms because the calculations vary widely.

For instance, Whirlpool’s Bitzer earned $11.8 million in total compensation for 2018, while the Benton Harbor-based company’s median employee — which Whirlpool identified as a full-time, hourly employee in Mexico — earned $20,485 for the year.

The Michigan-based appliance manufacturing giant reported having 21,462 employees in the United States and 71,985 workers in other parts of the world.

Bitzer earned a $1.25 million salary and more than $10 million in incentives, including short-term incentives for maintaining “leadership continuity” and implementing a cost-reduction initiative “which led to strong levels of ongoing productivity,” the company said.

Lear Corp. was fuzzier. The Southfield-base auto supplier identified its median employee as an hourly worker at a facility outside the United States who earned $10,063 in total compensation for 2018. About 6% of its employees — 9,171 of its 158,971 worldwide workforce — work in the United States, while the majority are located elsewhere.

The front entrance to the new Lear Corp. plant in Flint.
The front entrance to the new Lear Corp. plant in Flint. (Photo: Lear Corp.)

CEO Raymond E. Scott, who was promoted to that role in March 2018, earned $9.9 million in total compensation for the year, or 987 times as much as the company’s median worker.

Scott earned annual incentives “for the achievement of financial performance goals considered important to the company’s future success” and other incentives the company said are designed to “drive superior long-term performance and to align the interests of our senior management with those of our stockholders.”

A Lear spokeswoman declined additional comment. Whirlpool did not respond to a voicemail or email seeking comment on its pay ratio disclosure.

What median pay reflects

Median pay does not represent the average pay of all employees at a company. Instead, it is used to ballpark how much a middle-tier employee makes at a firm, a measurement that can minimize the impact of extremely high or low pay rates.

In Michigan, the median wage for all workers was $18.08 per hour in 2018, according to the Michigan Department of Technology, Management and Budget. That equates to $37,606 for an employee who works 40 hours a week for a full year.

Michigan’s median wage ranked 24th in the country and remained below the national median of $18.58.

The CEO pay ratios were first disclosed for 2017. On average, the heads of publicly traded U.S. companies earned 144 times as much as their median employee that year, according to an analysis from Pearl Meyer, an executive compensation consulting firm.

The ratios varied by company type and size, with the highest average of 289-1 at companies with between $3 billion and $10 billion in average revenue.

While it would “be unwise for companies to ignore the current groundswell of public debate on pay,” Pearl Meyer Managing Director Deborah Lifshey has cautioned management against making pay structure changes because of the new disclosures.

“In other words, boards should continue to set CEO pay based on sound governance principles and a philosophy that aligns compensation with the company’s long-term business strategy,” she wrote in the analysis.

DTE Energy CEO Gerry Anderson earned nearly $11 million in total compensation for 2018, about 91 times as much as the median employee identified by the Detroit-based energy utility, who earned $120,861 for the year, including overtime, matching 401(k) retirement savings contributions and other taxable benefits.

Over at the state’s other incumbent energy utility, Consumers Energy paid CEO Patti Poppe $8 million in 2018. That was 74.2 times as much as the median Consumers Energy employee, who earned $109,100 for the year and 76.2 times as much as the median employee at CMS Energy Corporation, who earned $106,125.

How auto CEOs compare

General Motors Co. is the largest Michigan company that has yet to file its report for 2018, but the Detroit automaker reported a 295-1 pay ratio between CEO Mary Barra and its median employee in 2017.

General Motors CEO Mary Barra speaks to reporters after meeting with the Michigan congressional delegation to discuss plans for the massive restructuring by the Detroit-based automaker, on Capitol Hill in Washington, Thursday, Dec. 6, 2018.
General Motors CEO Mary Barra speaks to reporters after meeting with the Michigan congressional delegation to discuss plans for the massive restructuring by the Detroit-based automaker, on Capitol Hill in Washington, Thursday, Dec. 6, 2018. (Photo: J. Scott Applewhite, AP)

Barra earned nearly $22 million in compensation that year, compared with $74,487 for GM’s median employee. At the time, America’s largest automaker by market share said it had 103,000 employees in the United States and 77,000 outside the country.

Ford Motor Co. CEO Jim Hackett earned $17.7 million in total compensation for 2018, the Dearborn-based automaker said in its recent SEC filing. It was 267 times as much as the median total compensation for all other employees of $64,316.

Of Ford’s 202,256 employees worldwide, the Dearborn-based company said 44% are located in the United States while 56% work outside the country.

Fiat Chrysler Automobiles N.V., which has a significant presence in Michigan, is not required to file the SEC disclosure report because it is headquartered in Italy, not the United States.

Ford CEO Jim Hackett speaks about his time at the company, how he feels his business plan is shaking out, and what he expects over the next year during an interview at Ford’s The Factory at Corktown.Buy Photo
Ford CEO Jim Hackett speaks about his time at the company, how he feels his business plan is shaking out, and what he expects over the next year during an interview at Ford’s The Factory at Corktown. (Photo: Max Ortiz, The Detroit News)

The Economic Policy Institute, a research group founded with union support, uses its own methodology to study executive compensation. The Washington, D.C.-based group found that in 2017, CEOs at the country’s 350 largest firms earned 312 times as much as a typical worker at their companies, up from 20-1 in 1965 and 58-1 in 1989.

The median pay ratios that companies must disclose under Dodd-Frank are limited in value because reporting rules were “watered down” amid fierce resistance from business groups who argued they would be too difficult to construct, EPI said in an August report.

But the public reporting requirement is “absolutely a positive development that calls to attention the gap between what CEOs make and what regular workers make,” said distinguished fellow Lawrence Mishel. “And I think investors and workers want to know that too.”

joosting@detroitnews.com

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