Under the SEC ratio disclosure rule, companies have two ways to exclude non-U.S. employees from their calculation of median worker pay.
If a company’s non-U.S. employees account for 5 percent or less of its total employees, the firm may exclude all of those employees when making its pay ratio calculations. But in this circumstance, if the company chooses to exclude any non-U.S. employees, it must exclude all of them.
If a company’s non-U.S. employees exceed 5 percent of its total U.S. and non-U.S. employees, the firm may exclude up to 5 percent of its total employees who are non-U.S. employees. Honeywell, with 86,092 non-U.S. workers and 57,027 U.S. employees, falls in this category.
Firms have an obvious incentive to exclude non-U.S. employees from low-wage countries from their median worker pay calculations. The more low-wage workers companies exclude, the higher their overall corporate median pay will be — and the less outrageously overpaid their CEO will appear.
But if companies in Honeywell’s situation exclude any workers from a foreign nation, they must exclude all non-U.S. employees in that nation and report the number of employees in each nation being excluded.
In its new pay ratio disclosure, Honeywell lists 27 countries where the firm has excluded a total of 7,040 employees. This list of countries does not include any Western European countries or Japan, all higher-wage nations. As a result, the 333:1 ratio that Honeywell is reporting most likely would be even wider if Honeywell took all its workers into account
Corporate pay justice activists around the United States see the new pay ratio data now just starting to emerge as long overdue, and shareholders, workers, consumers, and policymakers interested in narrowing our country’s economic divide are already mobilizing to put the data to good use. They’re advancing efforts, at every level of government, to leverage the power of the public purse against the extreme economic inequality that existing corporate pay practices so routinely generate.