A Blog by Jonathan Low


Apr 16, 2018

Big US Companies Begin Disclosing Overseas Employment, CEO-Workforce Pay Ratios

The big question is whether forcing corporations to reveal such information will actually change hiring and compensation behavior.  JL

Vanessa Fuhrmanns reports in the Wall Street Journal, photo by Ng Guan in AP:

Between 2000 and 2015, American multinationals hired 4.3 million people in the U.S. but added 6.2 million overseas. U.S. multinationals in 2015 employed 28.3 million people domestically and 14.1 million abroad.“It’s another beneficial outcome of the pay-ratio disclosure. It’s more insight into how companies deal with their human capital, and that’s material information for investors.”
Companies frequently say employees are their most valuable asset, yet many don’t divulge where those workers live and work.
Now, thanks to a new regulatory mandate affecting publicly traded companies, big multinationals are revealing fresh details about how many people they employ in the U.S. and to what extent some of the most recognizable American brands rely on workers in lower-cost countries.
Kellogg Co., the maker of Frosted Flakes and Pop-Tarts, employs nearly 20,000 people, or 59% of its workforce, overseas. At fruit and vegetable producer Fresh Del Monte Produce Inc., FDP +1.21% 80% of workers live and work in Costa Rica, Guatemala, Kenya and the Philippines.
In manufacturing, Whirlpool Corp., known for its home appliances, recently reported that its median worker in 2017 in terms of pay was a full-time employee in Brazil earning $19,906. Boiler maker A.O. Smith said its median employee last year was an hourly factory worker in Nanjing, China, who made $17,687.
The new data on median incomes stems from a quirk in the rules the Securities and Exchange Commission crafted for employee-pay disclosures required as of this year.
Publicly traded U.S. companies have to disclose the gap between what they pay their chief executive and what they pay their median worker, and the ratio between the two. The requirement was mandated by the Dodd-Frank Act of 2010 in the aftermath of the global financial crisis as a way to help investors better assess executive-pay practices.
Past securities regulations have only required that publicly traded U.S. companies report their overall global head count. In recent years, roughly a quarter went further and voluntarily disclosed how many employees they had in the U.S. versus abroad, according to researchers at Ohio State University and the University of Toronto.
The current requirement is that companies disclose pay for the CEO and the median worker, but not necessarily the size of their domestic and overseas workforces. Companies, however, must report these head counts if they opt to exclude some of their overseas workers—up to 5% of the total workforce— from their calculations of median workers’ pay.
“It’s another beneficial outcome of the pay-ratio disclosure,” said Jonas Kron, senior vice president at Trillium Asset Management, part of a coalition of institutional investors that last year petitioned the SEC to require companies to disclose more employee metrics, such as turnover rates and workforce demographics. “It’s more insight into how companies deal with their human capital, and that’s material information for investors.”
Of a sampling of more than 180 S&P 500 companies disclosing CEO pay ratios so far, about a third have opted to disclose the proportion of their workforce that is outside the U.S. In total, 286 companies in the S&P 500 have disclosed pay-ratio data so far.
Some companies, such as Fresh Del Monte Produce, say they are providing details on U.S. versus overseas workers in part to explain why their median paychecks are lower than at competitors whose employees are mostly U.S.-based.
Apparel company Hanesbrands Inc., whose global workforce has increased by 21% since 2010, already discloses in its annual report how many of its workers are based in the U.S., where head count has shrunk. Its proportion of overseas workers rose last year to 88% of 67,200 employees overall, compared with 85% of 55,500 workers in 2010.
In March, Hanesbrands disclosed that CEO Gerald W. Evans Jr. made $9.58 million, or 1,830 times the $5,237 annual pay of its median employee. The company said its typical worker was an equipment operator at a supply-chain facility in Honduras. Four of five employees work at similar sites, mostly in Central America, the Caribbean and Asia, Hanesbrands said.
Spokesman Matt Hall said the company provided the extra detail because it is one of the few U.S. publicly traded apparel companies to own a majority of its international supply chain instead of outsourcing the garment work to third parties—which means many company employees live in lower-cost countries.
“We wanted to give some context as to how the pay ratio would be calculated,” he said.
The size of overseas workforces is a hot-button issue for many U.S. companies due to political sensitivities around shifting American jobs to developing countries.
Between 2000 and 2015, the most recent year that Commerce Department data is available, American multinationals hired 4.3 million people in the U.S. but added even more jobs—6.2 million—overseas. In total, U.S. multinationals in 2015 employed 28.3 million people domestically and 14.1 million abroad.
A number of companies don’t disclose their U.S. head counts. One is International Business Machines Corp., which stopped reporting the size of its U.S. workforce in 2010 and didn’t shed any more light on the geographic makeup of its workforce when it disclosed its CEO-pay ratio earlier this year. Chief Executive Ginni Rometty earned $18.6 million, or 341 times the $54,491 that IBM’s median employee earned.
Some companies reporting their overseas head counts say the expansion of their workforce abroad isn’t about shipping jobs to low-cost countries, but rather about employing workers closer to customers.
Kellogg reported that CEO Steven Cahillane, who took the helm in the fall, made $7.3 million on an annualized basis, or 183 times the $40,163 pay of its median worker. The company didn’t disclose where that worker was located.
More than half of Kellogg’s employee base is outside the U.S. because it sells food in more than 180 countries, spokeswoman Kris Charles said. A majority of Kellogg’s sales still come from the U.S., according to earnings reports, but as cereal sales in its home market have slumped in recent years, it has shed hundreds of American jobs..


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