Inequality-Pay Ratio Vote Guide

Inequality in the U.S. is on the rise. The share of net worth held by the top 1% of Americans has  swelled to 31.7% from 22.5% in 1990, driven by stagnating wages on the one hand and financial asset appreciation and three decades of record stock market returns on the other. Housing unaffordability has soared to new highs at the same time that the richest 1% have amassed enough wealth to buy every home in the US. The top decile of earners now account for nearly half of all consumer spending in the US, with Bloomberg warning that an economy that hinges on the consumption of a “small, wealthy cohort is more vulnerable than one backed by broad-based spending.”

The investment community increasingly recognizes inequality as a system-level risk that harms the economy, the capital markets, and long-term and sustainable value creation. Excessive CEO compensation and extreme pay disparities between executives and workers are a key driver of intensifying inequality risk. According to the Economic Policy Institute, CEO compensation increased 1,094% between 1978 and 2024, compared to just 26% for a typical worker. Management expert Peter Drucker famously argued that the ideal CEO-to-worker pay ratio is 20:1, and that exceeding this threshold amplifies exposure to human capital risks. Yet in 2025, the median CEO pay ratio for S&P 500 companies was 195:1 and as high as 419:1 in low-wage sectors such as consumer discretionary. CalPERS’ internal research finds higher levels of worker unrest at low-wage corporations where median worker pay has either remained flat or declined relative to executive compensation.

Publicly traded companies have been required to report their CEO pay ratios in their proxy statements or 10-K filings since 2018. While the metric has limitations, it is useful because it is easily available to shareholders and facilitates rules-based proxy voting. Shareholders should mitigate systemic inequality risk by voting against say-on-pay proposals at companies whose CEO pay ratios exceed a specified threshold. Yet to date, investors have rarely considered the CEO pay ratio in their deliberations on executive compensation, choosing to instead base their say-on-pay votes on the structure of pay packages and factors such as special awards and lack of performance-based metrics. A notable exception is UK asset manager L&G, which votes against say-on-pay proposals at any S&P 500 company where the CEO pay ratio exceeds 300:1 and the total shareholder return underperforms the rest of the index over a three-year period.

Majority Action's 2026 Inequality - Pay Ratio Vote Guide recommends votes against say-on-pay proposals at S&P 500 companies with extreme levels of intra-firm inequality relative to their peers. We recommend against companies whose CEO pay ratios rank in the top decile of the index (greater than 494:1), as well as companies whose pay ratios are severely misaligned with their sectoral peers. The focus on sectoral outliers is particularly important because most companies justify the rise in CEO pay on the basis of peer group comparisons.