The law lets companies exclude people employed by contractors or other independent entities. That will probably affect the pay ratio for U.S.-based retailers such as Nike Inc. and L Brands Inc. that outsource manufacturing.
“If their business model relies on a high concentration of low-wage workers that aren’t part of their formal workforce, the number may appear to be much better than if you actually included the people who are responsible for producing the goods,” AFL-CIO’s Slavkin Corzo said.
Financial firms and technology companies also outsource a significant amount of computer and back-office work, said Ron Hira, an associate professor of political science at Howard University.
*Companies can omit some workers abroad.
The rule lets companies exclude up to 5 percent of their staff if they’re outside the U.S. That may narrow ratios for businesses with a share of workers earning significantly less abroad. In addition to outsourcing, many big banks have shifted part of their technology, back-office and legal operations to low-wage locations such as India and the Philippines, Hira said.
“The term of art they use is that they’ve ‘rebalanced their workforce,’” Hira said. “We’re talking about hundreds of thousands of people that are overseas.”
*Sign-on packages for new CEOs may be ignored.
When a company hires a new CEO, the law presents two options. The business can combine pay for both the new and the former leader for that year. Or, it can annualize pay for the person in charge on the date that median pay is defined.
The latter method means a company could time their calculation or the CEO transition to use figures for the lower- paid executive. Incoming chiefs often get packages laden with equity, which could skew that side of the ratio upward.
Microsoft Corp.’s Satya Nadella received a reported pay package valued at $84.3 million after being named CEO of the software company in 2014. Nadella’s predecessor, Steven Ballmer, had reported pay of $483,584 that year.