Why do bosses like the 'Pity City' CEO seem so out of touch? The growing CEO-to-worker pay gap may offer a clue.

By Levi Sumagaysay

Andi Owen, CEO of MillerKnoll Inc., drew backlash for her response to employees' concerns about their bonuses

Many employees are seeing their bonuses reduced or eliminated these days, but the ones at a Michigan-based furniture company whose chief executive asked them to leave "Pity City" in a now-viral video may be getting the most sympathy -- at least online.

At some of the nation's biggest companies where employee bonuses have been affected, the chief executives and other management have also taken cuts in bonuses or pay, though there are exceptions.

But if there's any question about why CEOs like Andi Owen of MillerKnoll Inc. (MLKN) may seem out of touch with their employees -- she went on a rant after employees reportedly asked about a possible lack of bonuses this year -- the overall rise in the CEO-to-worker pay ratio over the past few decades might offer a clue.

Read more:Employees asked about their canceled bonuses. So the CEO warned them against living in 'Pity City.'

In 2021, the average pay for CEOs was 399 times what a typical worker made, according to an analysis of publicly available data by the Economic Policy Institute. That's an increase of 1,460% since 1978, the left-leaning think tank said.

MillerKnoll's proxy shows Owen made $4.98 million in fiscal year 2022, while the average worker's pay at the company was $44,810, a ratio of 111 to 1.

"When CEO salaries are many times more than their average workers', it conveys a message about everyone's perceived value to the company," said Karen Jaw-Madson, a California-based consultant, coach and advisor to executives and boards. "This fosters a dissonance between what companies say (we value our people) and what they do (creating perceived unfairness)."

Some well-known companies have cut or eliminated bonuses recently, including for their top executives, as their stock prices have taken a hit and as some of them have also laid off thousands of employees. In some cases, the CEO-to-worker pay ratio has fallen -- though, generally speaking, it remains high.

For example, Intel Corp. (INTC) is reducing pay for employees and CEO Pat Gelsinger as the chip maker deals with economic uncertainty. The company is suspending merit raises and quarterly bonuses, and cutting Gelsinger's base salary by 25%. But Intel's messaging uses a kinder and gentler approach, with a statement that said, "We are grateful to our employees for their commitment to Intel and patience during this time as we know these changes are not easy."

Companies like Intel might understand that bonuses can make up a significant portion of employee compensation: For example, they can comprise 55% of tech employees' compensation, according to Dice, a website for tech professionals. Dice's recent salary report also found that fewer tech workers received bonuses last year, and that a bigger number of tech workers were less satisfied with their compensation in 2022 compared with 2021.

Gelsinger's total compensation was more than $11.6 million, while the average Intel employee's pay was $96,400, for a pay ratio of 120 to 1, according to the company's proxy.

Bonuses can be a big deal in other industries, too. "In finance, bonuses can get quite large," Daniel Zhao, lead economist for the job site Glassdoor, told MarketWatch. Bonuses can also offer flexibility for employers, Zhao added, noting that compensation can take many forms. "That can be good in good times, but bad in bad times."

Glassdoor provided an example: A vice president at Goldman Sachs Inc. (GS) who made $330,167 annually had base pay of $173,751. That means additional pay of $156,416 could include bonus, stock, commission and more, according to a Glassdoor spokesperson.

Goldman Sachs is reportedly slashing bonuses by as much as 40% this year. The investment bank's CEO-to-worker pay ratio last year was 211:1, with CEO David Solomon taking home more than $31.6 million in 2022, while the company's median employee salary was $149,707. Solomon's bonus last year was $6.9 million, down from $9.9 million the previous year, according to the company's proxy.

See:Some of these 'overpaid' CEOs are taking pay cuts. Will it matter?

Another big company that reportedly pared bonuses is Amazon.com Inc. (AMZN) The internet giant was said to have slashed some employee bonuses and raises last year. But a company spokesperson pushed back on that report and said pay wasn't actually cut, and that the problem was that the communications contained incorrect information.

"We identified and immediately corrected an issue with some newly promoted employees' compensation communications," company spokesperson Brad Glasser said.

The company's proxy showed that CEO Andy Jassy's compensation also fell -- to about $1.3 million in 2022 from $212 million in 2021 -- partly because he did not receive a stock grant last year, and also because the company's stock price fell 50%. The average Amazon employee's pay was $34,195, so the company's CEO-to-worker pay ratio, which was 6,474 to 1 in 2021, improved to 38 to 1.

As for Owen, the MillerKnoll CEO, a company spokesperson has said her comments to employees were taken out of context. She has also reportedly apologized to employees, saying she "feels terrible" that her "rallying cry seemed insensitive."

This story has been updated with comment from Amazon.

-Levi Sumagaysay

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04-22-23 1022ET

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