SEC Pay Ratio

Securities and Exchange Commision seal

The issue

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal Securities and Exchange Commission developed regulations requiring public companies to report the ratio of CEO pay to median employee pay. Most companies were required to report their pay ratio for the first time beginning in the spring of 2018.

While the SEC pay ratio was meant to expose excessive executive compensation and give shareholders a way to assess pay disparities, NRF believes it is a flawed measure that unfairly singles out industries like retail that have high percentages of part-time, seasonal and entry-level employees.

Why it matters to retailers

NRF believes the retail industry’s high reliance on part-time and seasonal workers distorts retailers’ pay ratios.

The SEC’s guidelines require that pay be computed and reported for all employees on an annualized basis rather than for the hourly rate they are paid, even when employees work on a part-time basis. For retail, the median wage appears artificially low because the industry employs nearly twice as many short-term, seasonal, part-time and young workers as other industries. Retail’s high percentage of entry-level workers also skews the numbers. These factors contribute to making the CEO-to-worker pay ratios appear artificially high.

NRF advocates for a fair pay ratio

NRF conducted research that shows the SEC methodology is seriously flawed. Failing to adjust for the large number of part-time and seasonal workers inflates retail’s ratios by an estimated 31 percent over typical employers. NRF bases this figure on calculations across the industry comparing median earnings of all retail employees with a more realistic comparison that factors out part-time workers.

The SEC rules distort the true picture of retail jobs and retail pay and reveal significant flaws and gaps in government data on the industry.

  • Part-time workers are critical to the retail business model. Consumer demand shifts daily, weekly and seasonally, which makes it almost impossible for retailers to serve their customers with a workforce made up solely of full-time employees.
  • Overall, about 30 percent of retail workers are classified as part-time. Retail employs 18 percent of all part-time workers in the United States and 23 percent of working teenagers — the most common type of part-time worker.
  • Part-time employment offers a flexible choice to millions of Americans across the country and the opportunity to make money and build skills. Most part-time employees (75 percent) are part-time by choice; they may be in school, have another full-time job or be a primary caregiver.
  • Part-time wages are also not equivalent to full-time wages due to differences in experience and skill.

NRF believes the CEO pay ratio as calculated under the SEC rules fails to achieve its intended goal. Rather than identifying companies with high disparities between CEO and worker pay, the ratio merely highlights companies with higher proportions of part-time and temporary workers.

While the SEC pay ratio is likely to create a false impression of low pay and unhappy workers in the retail industry, research shows that is not the case. Retail offers good jobs, dynamic careers and competitive pay. According to NRF research:

  • Retail employees like their jobs — 78 percent of retail store employees say they are satisfied with their job, and 79 percent say they are “happy working in retail.”
  • Most employees see professional success — 60 percent of retail store employees have been promoted, and 85 percent have earned a raise.
  • Retail is an industry that supports career growth — 62 percent of retail store managers say they reached their current position by “moving up the ranks” in the industry, starting, for example, as a store associate.

Pay Ratio Distortion in Retail: Get the Facts on Retail Jobs from National Retail Federation