The ratio of CEO compensation to worker pay skyrocketed over the last 40 years, and 3M’s compensation for its CEO accelerated as well, with its top officer making about 302 times median worker pay.
For the second year in a row, the USW, a 3M shareholder, introduced a proposal at 3M’s annual meeting to highlight this increase and suggest that the company consider the pay grades and/or salary ranges of its employees when setting target amounts for CEO compensation.
Shareholders have shown increasing concern that CEO pay is outpacing employee compensation and that CEOs may be more preoccupied with their own compensation than the welfare of the company, with support at the May 14 meeting for the USW’s proposal increasing over last year.
In the supporting statement for its proposal, the USW said the large disparity between CEO compensation and worker pay can impact the morale and productivity of employees who are not senior executives. This is especially true since worker pay has remained stagnant for decades despite productivity increases.
Even high pay disparities between CEOs and other senior executives may undermine collaboration and teamwork, the union said in its supporting statement.
3M’s board of directors’ compensation committee looks at what other companies pay their CEOs to set its own CEO’s compensation. This is known as using “peer group benchmarks.”
In further support of its resolution, the USW said that using peer group benchmarks to set CEO compensation can lead to pay inflation. Even though many companies set compensation at the median of the peer group, some target their CEO’s pay above the median.
The system can also be gamed by including peer groups that have larger or more successful companies where CEO compensation is higher, the USW said.
CEO Pay
In 1998, 3M CEO compensation was less than $3.5 million. Ten years later, it increased to $12.3 million. In 2017, the 3M CEO earned over $20 million.
In contrast, median employee total compensation in 2017 was $63,338.
Before 1980, boards of directors largely determined CEO compensation by “internal equity” guidelines, meaning CEO pay was compared with the compensation of other employees at the same company.
Then, a new field of executive-compensation consultants arose in the 1980s, and these consultants convinced companies to move to an “external equity” method of determining CEO compensation. “External equity” meant basing CEO pay on what other CEOs are paid, i.e. peer group benchmarks.
Other 3M Announcements
3M’s first quarter 2019 financial results were known before the company’s annual meeting. Media reports said that financial analysts were disappointed at the results because they were expecting $2.50 per share instead of the $2.23 per share the company earned in the first quarter, when adjusted for one-time costs.
The company also said it planned to cut 2,000 jobs globally as part of a restructuring due to a slower-than-expected 2019 and part of a cost-cutting effort. Yet, 3M found the money to pay over $17 million to two CEOs in 2018 when one of them retired.