Yes, median pay at Facebook really is about $240,000 a year

Visitors stop for photos at the Facebook sign in front of the Menlo Park headquarters. The company has reported that its median pay is $240,430. Visitors stop for photos at the Facebook sign in front of the Menlo Park headquarters. The company has reported that its median pay is $240,430. Photo: Michael Macor / The Chronicle Buy photo Photo: Michael Macor / The Chronicle Image 1 of / 1 Caption Close Yes, median pay at Facebook really is about $240,000 a year 1 / 1 Back to Gallery

A law that requires public companies to disclose the median pay of their employees and compare it with their CEO’s compensation is producing some eye-popping numbers that spotlight income inequality in America.

Among the 40 largest Bay Area companies that have reported, median employee pay last year ranged from $5,375 at Gap to $240,430 at Facebook.

The median is the midpoint at which half of workers make more and half make less. Gap said its median-paid employee, a real person, was a part-time sales associate in Alabama who worked a partial year and whose pay was not annualized. If you were instead to compare senior software engineers at Facebook and Gap, their pay disparity would be much less startling. But that’s not what the law requires.

The CEO-to-worker pay ratios at these two companies were also extreme.

Gap CEO Arthur Peck took home $15.6 million, or 2,900 times more than the median employee.

Facebook founder and CEO Mark Zuckerberg made 32 times what the median Facebook worker earned. Zuckerberg took a $1 salary last year and got no new stock grants (on top of the $70 billion in Facebook stock he already owns). His $8.8 million in compensation last year was mainly for his personal security detail and private aircraft use.

Google parent Alphabet said its median employee made $197,274 last year; its CEO and co-founder Larry Page took home his usual $1, producing a pay ratio near zero.

Congress required this disclosure in the Dodd-Frank Act, passed in 2010 in the wake of the financial crisis and growing outrage over the wealth of the richest 1 percent. The goal was to “name and shame” companies that are perceived to be bad actors, said Jessica Schieder, a research assistant at the Economic Policy Institute.

Whether it helps shrink the pay gap remains to be seen.

Companies whose fiscal year ended Dec. 31 have until Monday to report this information in their proxy statements. Companies with other year-ends, of which there are many, will report later this year. Some smaller public companies are exempt.

Photo: Alex Brandon, Associated Press Facebook CEO Mark Zuckerberg testifies before a joint hearing of...

Nationwide, the average CEO-to-worker pay ratio for almost 1,600 companies that have reported is about 150 to 1, which is lower than expected, said Deborah Lifshey, a managing director with compensation consulting firm Pearl Meyer. “Everyone was talking about 250,” she said.

Using other data last year, the Economic Policy Institute estimated that the average CEO made 271 times more than the median worker in 2016, down from 299 times higher in 2014 but “still light-years beyond the 20-to-1 ratio in 1965 and the 59-to-1 ratio in 1989.”

It will take several years of data to see what impact the new disclosure is having, said Mark Borges, a principal with Compensia, a compensation consulting firm.

In 1992, largely in response to rising CEO compensation amid a recession, the Securities and Exchange Commission ordered public companies to start disclosing compensation packages for their top executives in a table understandable to shareholders.

But instead of reining in compensation, “CEOs got pay envy” when they saw what peers were making, and their pay skyrocketed, said Broc Romanek, editor of TheCorporateCounsel website. Now, he said, companies are “bracing for employee-morale backlash” when workers find out they’re earning less than the median.

The problem for employers is that “you could raise everybody’s pay, and still half the people will be below the median,” said Barbara Baksa, executive director of the National Association of Stock Plan Professionals.

Companies have some leeway when it comes to identifying their median employee.

At first, experts thought they would try to maximize the median to minimize the CEO pay ratio. “Over time the (human resources) community said maybe this is not your goal,” because a higher minimum could result in more disgruntled employees, Lifshey said.

Posting a higher median pay also could make it easier to poach employees. But experts warn that it’s hard to make an apples-to-apples comparison among companies because pay packages vary widely, as do the natures of their workforces.

To determine median pay, companies first have to come up with a “reasonable” way to measure compensation, then apply it consistently to all employees (except the CEO) to find the man or woman in the middle. Companies can choose which components of pay to include and exclude, within reason.

Most companies are including base salary, overtime, bonus and commissions, but excluding health insurance and 401(k) contributions, Lifshey said.

Companies that award restricted stock or stock options to most employees are generally including it, but they can choose from several different ways to value it for this purpose. Companies that are less generous with stock compensation may or may not include it.

To find the median employee, companies must include all full- and part-time workers as of a certain date.

They may annualize pay for workers who worked a partial year, but can’t convert a part-time worker’s pay to a full-time equivalent. They cannot include independent contractors who do work for them. They can exclude a limited portion of their overseas workers.

Once they have identified the median worker, all companies must calculate his or her annual compensation the same way, using the same formula they must use to calculate the CEO’s compensation. In many cases this is different than the formula they used to identify the median employee. At this stage, they must all value stock compensation the same way.

This helps explain the radically different median pay numbers at Facebook and Gap.

“Given the composition of our workforce, we do not believe the pay ratio calculation required by the SEC provides a complete picture of our compensation practices,” nor the value it places on employees, Gap spokeswoman Trina Somera said in an email. “Of our approximate 135,000 employees, about 100,000 of them are sales associates.” Of that number, 97 percent are part-time, about 55 percent are younger than 23 and 72 percent are paid at or above the market rate for their area.

At Facebook, spokesman Anthony Harrison said $240,430 “is absolutely representative” of employee pay. It includes restricted stock units, which almost all employees get. It does not include the pay of shuttle drivers, security guards, janitors or other outsourced workers that “handle services that are not core to our business.”

Nationwide, retailers and other “consumer discretionary” companies are posting the highest CEO pay ratios, 434-to-1 on average, according to Pearl Meyer’s website.

Among Bay Area retailers, Ross Stores said its CEO made $12.4 million compared with $9,437 for the median worker, a ratio of 1,314 to 1.

Williams Sonoma reported a ratio of 1,477 to 1. Its median employee was a part-time sales associate in New Jersey. If it excluded permanent part-time, temporary and seasonal employees, the retailer said, its median pay would increase to $38,776 from $9,771 and its pay ratio would drop to 372-to-1.

Utilities and financial companies (including banks) are reporting the lowest ratios — 64 to 1 and 68 to 1, respectively — nationwide.

Wells Fargo posted a much higher ratio, 291 to 1, but other Bay Area financial companies were lower: 146 to 1 at Charles Schwab, 66 to 1 at First Republic Bank and 46 to 1 at Silicon Valley Bank.

Ratios at technology companies nationwide are running around 151 to 1, in line with the all-industry average. But pay varies widely, depending on how generous tech companies are with stock options and where their workers are employed. The same is true in other sectors.

Align Technology of San Jose, which makes the popular Invisalign teeth straighteners, said its median employee is a technician in Costa Rica making $12,764, “which is competitive pay for a technician position in Costa Rica.”

Its CEO made 920 times that.

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender