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The salary-to-wage ratio is determined by contrasting a salary figure with a wage figure. In some cases, some companies use the salary to wage ratio to determine how much money administrators, typically salaried employees, cost the company, compared to the amount of money spent on workers, who tend to be hourly wage earners.
When thinking about the salary-to-wage ratio, some people think about the upper tiers of a company, meaning upper management. For example, one of the areas where the salary-to-wage ratio seems most pronounced is when comparing the pay for a CEO to the pay for an hourly worker. For example, in 2009, the average CEO salary was around $1 million for the Standard & Poor's 500 companies. However, when bonuses, stock options, incentive plans, and other compensation packages were included in the figure, the average CEO earned over $9,000,000. This can be expressed in a ratio of 180:1, where for every one dollar an hourly worker (earning $24 an hour) in a S&P 500 company earns, the CEO of that company earns $180 dollars. If the average pay for the hourly worker is $12 an hour, the ratio changes to 360:1.
In most cases, salary is a set amount of money making up all or part of employee wages. In general, salaried workers tend to be “white collar” workers – managers, department heads, scholars, etc. While hourly workers tend to get paid according to the amount of time they actually work, salaried employees get a base pay, regardless of how much time they are working. For this reason, salaried workers sometimes put in more hours and make less money than workers earning hourly wages. The salary-to-wage ratio is most pronounced in some government agencies, where there can be ratios as high as one salaried manager for every four hourly workers, resulting in a 1:4 salary-to-wage ratio, as can be seen with Oregon state government.
In order to determine the ratio of salary to wage, both figures must be put into equal values. To break down salary into an hourly wage, simply divide the annual salary by fifty-two. The resulting figure is the weekly wage. Taking the weekly wage and dividing by 40 provides the hourly wage for a 40-hour work week. To determine an annual salary based on hourly wages, simply take the hourly wage and multiply by 40. The resulting figure is then multiplied by 52. So, someone who makes $8 hour earns around $16,000 a year in terms of salary. The salary-to-wage ratio tends to be approximate, since wage earners have fluctuating incomes, depending on the number of hours worked.
When companies and agencies look to cut costs, examining the salary-to-wage ratio sometimes provides guidance. In Oregon, where the salary-to-wage ratio is 1:4, lawmakers seeking to save money and cut costs want to change the ratio to 1:11 by reducing the number of managers. In other words, rather than having one manager for every four hourly workers, lawmakers seek to have one manager for every 11 hourly workers.
- Bloomberg Businessweek; Oregon Looks at Worker-to-Manager Ratio in Gov’t; Jonathan Cooper; April 2011
- AFL-CIO: Trends in CEO Pay
- Congressional Budget Office: Differences in Wage and Salary Income Included in Various Tax Bases
- DifferenceBetween.net: Difference Between Wage and Salary
- Davis Applied Technology College; Salary and Wage Administration Policy; October 2010