This past week Pitchbook released a fascinating look at CEO pay relative to employee pay for private companies backed by private equity (PE), venture capital (VC), or corporate venture capital (CVC).
If you follow politics and the newest rule changes on requirements for public companies, you know that beginning this year public companies are required to release data on the pay of their chief executives relative to the typical employee (median pay).
The Pitchbook study plays along with this requirement, but instead of focusing on public companies, Pitchbook’s study focuses on, as just mentioned, CEO pay relative to the median employee pay for companies backed by PE, VC, or CVC.
Take a Guess
Before looking, take a guess at what the ratio of CEO pay to median employee pay is at PE, VC, and CVC-backed companies. Would you guess a ratio of 5? That would mean that for a company with a CEO making $1 million per year, the median pay for an employee would be $200,000.
CEO Pay to Median Employee Pay with All Employees Included
The following is the first look at the figures. Perhaps surprisingly (presuming you’re one of those individuals that thinks CEO pay is astronomically higher than non-CEO pay), the ratio of CEO pay to median employee pay at PE, VC, and CVC-backed companies is far from the 5 ratio suggested previously. Instead, at the median, the typical CEO earns about $300,000 per year while the median employee pay is about $150,000. This is a CEO/median employee pay ratio of 2.
Interestingly, at the maximum, the CEO pay to median employee pay ratio is on the low end at about 1.8 ($1.1 million/$600,000).
Source: Pitchbook
CEO Pay to Median Employee Pay with Non-Director Employees Included
In addition to the traditional reporting – i.e. including all employees – Pitchbook also released figures on the compensation of CEOs compared to non-director employees. Unsurprisingly, the ratios are larger with this comparison. As reported in the following figure, the median ratio is about 3.8 ($300,000/$80,000). This is a fair bit larger than the CEO pay to all employees median pay of 2.
Perhaps even more interesting than the jump in the pay ratio at the median is the pay ratio difference at the maximum. For private companies backed by PEs, VCs, and CVCs, the ratio reported by Pitchbook comes out at about 5.5 ($1,100,000/$200,000).
If one believes some of the figures reported by public companies, the average CEO pay to median employee pay for public companies is a massive 204. Perhaps it is beneficial to have PE, VC, and CVC backers? Individuals running PEs, VCs and CVCs generally have a stronger incentive to control costs associated with corporate executives.
Source: Pitchbook
Conclusion
In an interesting look at CEO pay to median employee pay at companies backed by PEs, VCs, and CVCs, Pitchbook’s reported figures suggest a much lower ratio of CEO pay to median employee pay compared to public company ratios. Why this is so is a topic for another day, but it does suggest some interesting dynamics in play when it comes to executive pay at public companies compared to private companies.
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