It’s no secret that bank CEOs are paid handsomely. But how their compensation stacks up against workers further down the corporate ladder has been a mystery for years.

Companies have begun pulling back the curtain over the past few weeks, disclosing ratios that compare pay packages for CEOs with average workers’ salaries. The disclosures are required this year for all publicly traded companies, under a provision in the Dodd-Frank Act.

The pay ratios have provided new insights about compensation in financial services. For instance, most large and regional banks pay their median worker — the person in the middle of a theoretical employee lineup — around $60,000. And megabanks have much wider gaps between how they compensate the person in the corner office compared with everyone else.

But the ratios — which top 250:1 at the biggest banks — raise more questions than they answer, observers said. Namely, are banks paying lower- and midlevel workers enough to cover their living expenses? Does the premium for running a bigger company make ambitious regional bank CEOs too hungry for acquisitions? And how do investors plan to use the new data in the years ahead?

“It’s either going to be a question of ‘Are we paying our people too little?’ or ‘Are we paying our CEO too much?’ ” said Laura Hay, a managing director at Pearl Meyer, the executive compensation firm, discussing the questions that bank directors have begun asking about the pay ratios.

Most big banks have disclosed their ratios as part of their 2018 proxy statements. A handful of big names — including JPMorgan Chase, Ally Financial and KeyCorp — have yet to release their reports.

So far, the pay ratios have mostly correlated with a company’s asset size.

Megabanks have shown the biggest gaps in CEO-to-average-worker pay, with Citigroup leading the pack at 369:1. The superregionals — namely the $462 billion-asset U.S. Bancorp and the $380 billion-asset PNC Financial — reported ratios of around 200:1. Banks closer to the $50 billion-asset mark came in at around 150:1.

Outliers in the group include the $118 billion-asset M&T Bancorp, where CEO Bob Wilmers, who died in December, earned 72 times the average worker last year.

Meanwhile, publicly traded community banks are filing disclosures, too, but they generally have not received the same kind of scrutiny on executive pay as their larger peers.

Discussing the results, Hay cautioned that companies have been given leeway from the Securities and Exchange Commission in how they calculate compensation for their median worker, meaning that comparisons between banks are imprecise. Still, she noted that the disclosures will likely provide a disincentive for companies to boost CEO pay without also investing in their workforces.

“It will embarrass the ones that have markedly larger ratios than their peers,” Hay said.

The CEO-pay-ratio requirement was included part of the 2010 Dodd-Frank financial overhaul, which was signed into law at a time when executive compensation — particularly in banking — was a public lightning rod. In writing the rule, the SEC was reportedly inundated with comment letters, as well as intense lobbying efforts from business groups and executives, which led to a delay. The agency approved the rule in 2015.

Nearly a decade after the crisis, widespread anger over lavish compensation has waned. But the pay-ratio disclosures nonetheless come amid concerns that wage gains since the crisis have mostly benefited the highest earners.

median pay at selected large banks

Inflation-adjusted income for the top fifth of all earners has increased more than 10% since 2007, according to a September report by Bloomberg News, which cited U.S. Census data. Over the same period, income declined by 3% for the bottom quintile.

The new disclosures are designed to provide a new data set for boards of directors, as they set compensation levels within their companies, observers said.

In fact, the ratio was designed from the outset to serve as a counterweight to the “Lake Wobegon effect” in executive compensation, which occurs when banks set salaries by comparing themselves them against high-earning peers, said Brandon Rees, deputy director in the investment office at the AFL-CIO. Lake Wobegon was a fictional town in a bubble, where residents’ children were all deemed above average.

“It’s a measure for reasonableness of CEO pay,” Rees said, noting that the disclosure was established, in part, to “counterbalance the way traditional CEO pay targets are set.”

Rees, a vocal critic of corporate governance at banks, said that he has heard from fellow investors that the ratios may be used as a “talking point” (that is to say, negotiating tool) in battles over executive compensation.

Institutional Shareholder Services, the influential proxy advisory firm, plans to include data on CEO pay ratios in its 2018 reports, but it will not use the data to make recommendations on how investors should vote, according to Hay.

Compared with other sectors, such as retail, financial companies have reported smaller pay ratios, observers said. For instance, ratios at retail and hospitality companies top 350:1, according to a recent report from Equilar, the executive compensation data firm. Still, the relatively large ratios reported by the megabanks will likely revive old questions about whether CEOs are paid to keep their banks too big.

“For financials, it probably prompts the same question it always does, which is: If you run a $2 trillion-asset bank instead of a $100 billion-asset bank … is it really two times harder to run?” said Brian Foran, an analyst at Autonomous Research. He added that, given the global scale of the biggest banks, the argument that big bank CEOs deserve significantly higher compensation has some validity.

Taken at face value, the data also provides a new way to look at different business models within the industry.

Signature Bank, for instance, has distinguished itself by recruiting teams of top-producing commercial bankers, paying up for talent and expecting big results in return.

The $42 billion-asset company said in its proxy statement that its median employee earns $99,929 — much more than the average worker at the biggest banks. Despite its high compensation costs, the New York company still managed to maintain an efficiency ratio in the low 30% range during 2017. Its CEO pay ratio, meanwhile, was 76:1.

“This validates the model,” Foran said, noting that First Republic in San Francisco takes a similar approach to compensation. “The more you pay, the more you get.”

In the weeks since banks have begun disclosing their CEO pay ratios, senior executives have focused their attention on internal communications, making sure employees understand the necessary context, according to Hay from Pearl Meyer.

In some cases, that has meant softening the blow to workers who learn that their salaries fall short of the company’s average salary.

“It opens up a dialogue around ‘How is pay established?’ and ‘What does the organization reward?’ ” Hay said.

In their proxy statements, some companies described in detail the profile of their median employee. At Regions, for instance, it was a full-time “financial relationship senior consultant” in the company’s branches, who earns an annual base salary of $43,160 and an additional $20,000 in benefits, such as medical insurance. CEO Grayson Hall’s compensation in 2017 was $12.7 million.

Regions’ pay ratio was 202:1. In addition to the required calculation, however, the company included a separate figure — what it calls an “alternative pay ratio — that subtracts the change in value for Hall’s pension in 2017. That figure was 150:1.

Depending on the local cost of living at a particular bank, the disclosures could also raise questions about whether banks are paying workers enough to keep pace with the cost of housing and other living expenses, according to Hay.

“It does bring up questions of whether or not the bank is paying a living wage,” she said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.