A new report from PayScale, “CEO Salaries: How Much Do CEOs Make Compared to Their Employees?” examines CEO-to-worker pay ratios in light of the recent adoption of a final rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act), that requires a public company to disclose the ratio of its CEO's compensation to the median compensation of its employees.

Companies will be required to provide disclosure of their CEO pay ratios for their first fiscal year beginning on or after January 1, 2017. The rule is primarily to provide transparency to shareholders around CEO pay, but PayScale also wanted to examine employee sentiment on the topic.

Do employees know what their CEO earns? If so, do they think it's fair? If they believe it's not fair, does it negatively affect their perception of their employer? And, finally, does CEO pay have any effect on the ability of a company to retain its employees? Additionally, PayScale asked some CEOs to weigh in with their thoughts on the Dodd Frank Act and their approach to employee communication as it pertains to executive pay.

Equilar provided pay data for the highest-paid CEOs in the U.S. and PayScale provided median worker pay data for those same companies. PayScale calculated the total cash compensation pay ratio between the CEO at each company and their employees.

PayScale examined aggregated responses to both of these questions by gender, generation, job level, and pay range. PayScale excluded responses to questions with fewer than 40 responses. The data pool included 22,162 responses collected between June 9, 2016 and July 10, 2016.

Many CEOs do receive substantial stock/option grants and perks as part of their compensation, but PayScale doesn't currently have similar equity and perks data available for employees, so it looked solely at cash compensation to calculate ratios for the report.

The report also evaluates employee opinions about executive compensation in the U.S. Survey respondents were asked about the appropriateness of their CEO’s compensation, and those who responded unfavorably were asked about whether or not this negatively affects their opinion of the company.

The questions are phrased as follows:

"Do you feel like your CEO (or top executive) is compensated appropriately for their role?"

• Yes, it’s a big job
• No, it feels way out of whack
• I don’t know what my CEO earns

If no, "Does your CEO’s pay negatively impact your view of your employer?"

• Yes, but I’m staying put
• Yes, and I’m leaving
• No, it’s just the way the world works

“One of the most closely watched topics in the employer/employee compensation discussion is the vast difference in CEO compensation compared to an employee base. Our new data seeks to go a layer deeper to determine how the difference in CEO and employee pay impacts a worker’s perception on their job and the company they work for. What’s especially interesting about the data is how demographics impact attitude," said Katie Bardaro—PayScale vice president of Data Analytics and Lead Economist—in a press release.

Bardaro added, "For example, more members of Generation Y do not know their CEO’s compensation compared to Generation X and the Baby Boomers (58% compared to 54% and 51%, respectively). And the Baby Boomers and Generation Y employees are more likely to approve of their CEO’s compensation.”

“The CEO pay ratio is going to affect every public company at all levels of their organizations,” said Dan Marcec, director of Content at Equilar. “PayScale’s survey suggests that if companies are proactive in communicating executive pay to their employees in advance of this information becoming public, they have the opportunity to have a more productive conversation internally about what will likely turn out to be a controversial topic.”

“How Much Do CEOs Make Compared to Their Employees?” highlights include:

• More than half of employees do not know their CEO’s compensation (55%), but a substantial majority of those who do believe that it is appropriate (79%).
• More than half of respondents who feel that their CEO is overcompensated report that it negatively affects their view of the company (57%).
• However, only 26% of respondents with negative opinions of their CEO’s compensation report that they plan to leave their employer.
• A larger percentage of Generation Y employees than Generation X or Baby Boomer employees report that their CEO’s perceived excessive compensation negatively affects their view of the company (63% compared to 55% and 48%, respectively).
• Employees at higher levels in their companies have more knowledge about and more readily approve of CEO compensation than employees at lower levels.
• The negative impact of perceived excessive CEO compensation on the respondent's opinion of the company decreases as job level increases.
• Knowledge of CEO compensation and approval of compensation increase directly with pay range.
• Among disapprovers, as income increases, fewer people’s views of their companies are negatively affected.
• The highest CEO-to-worker ratio in this report is held by CVS Health Corp CEO Larry J. Merlo, who received a total cash compensation of $12,105,481 in 2015, in comparison to the median CVS employee salary of $27,900, a ratio of 434:1. Fifty-three percent of Merlo's compensation is in the form of cash (salary, bonus, profit sharing, etc.).
• The lowest CEO-to-worker ratio in this report is held by ServiceNow, Inc. CEO Frank Slootman, who received a total cash compensation of $642,133 in 2015, in comparison to the median ServiceNow employee salary of $106,000, a ratio of 6:1. However, only 5% of Slootman's compensation is in the form of cash (salary, bonus, profit sharing, etc.).

“The report raises questions about what would happen if everyone knew their CEO’s compensation. We know employees at higher levels in their companies have more knowledge about and more readily approve of CEO compensation than employees at lower levels. As people move out of the 'don’t know' category, are they more likely to move into 'approve' or 'disapprove?' In this digital age of increasing transparency, I am sure answers to these questions are on the horizon,” added Bardaro.

For more information about the report, click here.