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The CEO pay ratio compares a U.S. public company’s principal executive officer’s annual total compensation with the median annual total compensation of the company’s employees other than the CEO. The calculation is:
CEO annual total compensation ÷ median employee annual total compensation = CEO pay ratio.
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Thus, $9 million for the CEO and $90,000 for the median employee produces a ratio of 100 to 1. A company’s filed ratio must use its own compensation figures and the methodology permitted by the U.S. Securities and Exchange Commission (SEC), so the arithmetic example is illustrative rather than a company result.
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The disclosure expresses how many times the median employee’s annual total compensation would fit into the principal executive officer’s annual total compensation for the same reporting period. The median employee is the person in the middle of the company’s employee compensation distribution: half of the included employees earn more and half earn less, after the company applies its chosen identification method.
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The ratio is reported with the median employee represented as one. A disclosed ratio of 93 to 1 means the CEO’s reported annual total compensation was approximately 93 times the reported annual total compensation of the selected median employee. It does not mean the CEO earned 93 times every worker’s pay, and it is not a comparison with the average employee.
The formula and the two amounts behind it
| Part of the calculation | What it is |
|---|---|
| Numerator | The principal executive officer’s annual total compensation, calculated using the executive-compensation disclosure framework. |
| Denominator | The median annual total compensation of employees other than the CEO, calculated under the applicable SEC methodology. |
| Result | CEO annual total compensation divided by median employee annual total compensation, presented as a multiple such as 100 to 1. |
The direction matters. The required disclosure is CEO-to-median, not median compensation expressed as a percentage of CEO compensation.
How a company calculates the ratio
Although the final division is simple, selecting the denominator requires several decisions about people, dates, data and compensation components.
1. Define the employee population and determination date
The company generally starts with employees of the registrant and its consolidated subsidiaries. The population can include domestic and non-U.S. employees, as well as full-time, part-time, temporary and seasonal workers, subject to the rule’s permitted exceptions. The company chooses an eligible determination date suited to its circumstances rather than being required to use a single universal date.
The determination date is important because the workforce and compensation records must describe a particular point in time. A seasonal employer, a company that has completed an acquisition, or an issuer with substantial turnover may produce a different median depending on when the population is measured.
2. Choose a method to identify the median employee
The company may calculate annual total compensation for every employee, but the SEC also permits a consistently applied compensation measure (CACM), statistical sampling, reasonable estimates, or a combination of reasonable methods. Payroll or tax-record information can serve as a CACM when it is applied consistently to the selected employee population.
The SEC Division of Corporation Finance’s September 21, 2017 staff guidance states: “In determining the employees from which the median employee is identified, a registrant may use its employee population or statistical sampling and/or other reasonable methods.” The flexibility is intentional: a global employer with hundreds of thousands of workers may need a different process from a smaller issuer with a concentrated workforce.
3. Select the median employee
Using the chosen measure, the company orders or models the included employees and identifies the person at the midpoint. If the company uses sampling or estimates, it must apply a reasonable, consistently used process that represents the workforce described in the filing.
The selected individual is a statistical reference point, not necessarily a typical worker in every respect. For example, a company with many retail, warehouse or service employees may have a median employee in one of those roles even if its corporate staff receives substantially higher pay.
4. Calculate annual total compensation for the median employee
After selecting the person, the company calculates that employee’s annual total compensation under the applicable Item 402(c)(2)(x) framework. The figure can include more than salary or wages, depending on the compensation components applicable to that employee and the company’s reporting approach.
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The SEC allows reasonable estimates when identifying the median and when calculating annual total compensation, or elements of it, for employees other than the CEO. The filing should describe material assumptions so a reader can understand how the denominator was produced.
5. Use the CEO’s annual total compensation
The numerator is the principal executive officer’s annual total compensation used in the executive-compensation disclosure. It is not simply base salary and should not be substituted with a stock-price estimate, an average of several executives, or a cash-only figure.
6. Divide and round the result for presentation
The company divides the CEO amount by the median employee amount and presents the resulting multiple. Filings commonly round the displayed ratio to a whole-number multiple, while also showing the underlying compensation amounts that allow a reader to understand the calculation.
Which workers are included or excluded?
The general population reaches employees of the public company and its consolidated subsidiaries in the United States and abroad, regardless of whether they are full-time, part-time, temporary or seasonal. The SEC rule also provides specific exceptions, so the filing’s description—not a reader’s assumption—controls the final population.
When evaluating a ratio, look for statements about:
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- Non-U.S. employees and any geographic or legal exclusions used under the rule.
- Part-time, temporary and seasonal employees.
- Employees added or removed because of an acquisition, disposition or restructuring.
- Whether independent contractors or workers supplied by another organization are outside the employee population.
- The date on which the population was counted.
These choices can materially affect the median. A company with a large international hourly workforce may have a lower median than a professional-services company with mostly highly paid employees, even when the two CEOs receive similar compensation.
Can a company reuse the same median employee?
Yes. The SEC framework permits a company to reuse a median employee for up to three years. Reuse is not automatic in every circumstance: a significant change in the employee population or in compensation arrangements can make the existing person no longer appropriate. The company must reassess when those changes undermine the relevance of the prior selection.
A filing should identify whether the company used the same median employee and explain any change in the method, population or compensation arrangement. A stable median-employee selection can improve year-to-year consistency, but it does not eliminate the need to check whether the underlying workforce changed.
Worked example: MillerKnoll’s fiscal 2026 proxy
MillerKnoll’s SEC-filed fiscal 2026 proxy reported CEO annual total compensation of $6,139,932 and median employee annual total compensation of $65,927. Dividing the CEO amount by the median amount gives approximately 93.1, which the filing presented as a 93-to-1 CEO pay ratio.
| Figure | Amount or result |
|---|---|
| CEO annual total compensation | $6,139,932 |
| Median employee annual total compensation | $65,927 |
| CEO pay ratio | 93 to 1, rounded for disclosure |
This is one issuer’s fiscal 2026 disclosure, not a recommended benchmark or a typical result for public companies. Its meaning depends on MillerKnoll’s employee population, determination date, compensation components and calculation assumptions.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What a 100-to-1 ratio does—and does not—tell you
What it tells you
- The reported CEO total-compensation amount was 100 times the reported median employee total-compensation amount for the disclosed period.
- The number provides a standardized disclosure point for examining the relationship between executive compensation and the company’s median employee compensation.
- Changes in the ratio can signal changes in CEO compensation, the employee median, or both.
What it does not tell you
- It does not describe the pay of every employee. Employees above and below the median may be far from the denominator.
- It does not use the average employee. A small number of very highly paid employees can raise an average without changing the median in the same way.
- It does not, by itself, establish that executive compensation is fair, excessive or justified.
- It does not measure employee satisfaction, working conditions, benefits quality, job security or overall economic welfare.
- It does not prove that two companies with the same ratio have equivalent compensation structures.
Why ratios differ between companies
Cross-company rankings require caution because the SEC permits companies to make reasonable methodological choices. Recent proxy disclosures from issuers including J. M. Smucker and Walmart warn that ratios may not be comparable when companies differ in:
- Industry and business model.
- Company scale and geographic reach.
- Mix of salaried, hourly, retail, warehouse, seasonal and temporary workers.
- Employee exclusions allowed by the rule.
- Determination date and fiscal year.
- CACM, statistical sampling and other median-identification methods.
- Use of estimates and assumptions.
- Treatment of non-U.S. compensation and currency-related data.
- Components included in annual total compensation.
A lower ratio can result from a higher median employee compensation, a lower CEO compensation figure, or workforce characteristics that have nothing to do with a company’s overall pay philosophy. A higher ratio can arise from the opposite combination. The ratio is most informative when read with the filing’s methodology and the company’s workforce context.
How to compare two CEO pay-ratio disclosures responsibly
Before comparing the multiples, place the underlying disclosures side by side.
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|---|---|
| Do the fiscal years and determination dates match? | Different periods can capture different bonuses, equity awards, hiring cycles and seasonal workforces. |
| Is the employee population defined the same way? | Geographic reach, subsidiary coverage and permitted exclusions change the denominator. |
| What CACM or other method identified the median? | Payroll data, tax records, annual total compensation, sampling and estimates can select different employees. |
| Were estimates or statistical samples used? | Assumptions affect the precision and reproducibility of the median. |
| Which compensation components were included? | Salary alone is not equivalent to annual total compensation that includes other reportable elements. |
| How was non-U.S. pay handled? | International workforce composition and compensation treatment can move the median substantially. |
Only after documenting those differences should you compare the displayed ratios. Even then, the comparison describes disclosed metrics, not a complete ranking of employee welfare or executive-pay quality.
How to read a company’s proxy disclosure
- Find the stated CEO amount. Confirm that it is annual total compensation for the principal executive officer, not salary alone.
- Find the median employee amount. Check the compensation components and whether the figure is based on annual total compensation or a CACM used to identify the person.
- Check the population date. Note the fiscal year and the eligible determination date.
- Read the workforce description. Look for domestic and non-U.S. coverage, part-time and seasonal employees, subsidiaries and permitted exclusions.
- Review the method. Identify whether the company used a full employee population, statistical sampling, payroll or tax records, estimates, or a combination.
- Check median-employee reuse. Determine whether the person was carried forward from an earlier year and whether the company describes changes that could require a new selection.
- Recalculate the displayed multiple. Divide the reported CEO amount by the reported median amount. Small differences can result from rounding.
Why the ratio can change from one year to the next
The multiple is a moving relationship, not a permanent characteristic of a company. It can change when the CEO receives a different bonus or equity award, when the median employee’s wages or benefits change, or when the workforce mix shifts. Acquisitions, divestitures, international expansion, layoffs, seasonal hiring and a change in the determination date can all affect the denominator.
A methodological change can also move the result even when underlying pay changes little. For that reason, a year-over-year comparison should identify whether the company changed its CACM, sampling, estimates, employee exclusions or median employee.
The practical bottom line
The CEO pay ratio is a required disclosure multiple: the principal executive officer’s annual total compensation divided by the median annual total compensation of employees other than the CEO. The arithmetic is straightforward; defining the employee population, selecting the median and calculating comparable total compensation require judgment within SEC rules. Treat the number as a starting point for understanding a company’s disclosed pay structure, and use the accompanying methodology before drawing conclusions about fairness or comparing issuers.
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