New York Times Announces Pay Ratio Derivative—the "Marx Ratio"—Showing Workers Generally Fare Better Than Capital

June 01, 2018

In conjunction with its annual CEO pay survey, The New York Times unveiled the “Marx Ratio,” which shows that the median pay of employees is generally greater than the profit per employee among large companies.

The alternative ratio, named for economist Karl Marx, aims to “capture the relationship between a company’s profits—the return to capital, on a per-employee basis—and how much its median employee is compensated, a rough proxy for the return to labor." 

After initial disclosures failed to provide earth-shattering revelations, pay ratio proponents are turning to other uses.  The Marx Ratio, presented by Times senior economic correspondent Neil Irwin, provides the first major alternative use of pay ratio disclosures the Association has seen to date.  This is likely just the first of many.   

“Companies with high Marx Ratios offer particularly strong rewards to their shareholders relative to workers,” Irwin states.  Ratios above one indicate a more favorable return to shareholders relative to workers while ratios below one signal “a more favorable return to labor."

  • The ratio shares the same basic flaw as the CEO pay ratio, as it is dependent upon industry and business model, and will be influenced by whether companies have high or low margins, are labor intensive, and/or have high or low median pay numbers, regardless of their performance or pay approaches.
  • The “median Marx Ratio” was 0.82, indicating that employees are benefiting more than shareholders, though several companies' ratios were well above 1.0. The survey covers 394 of S&P 500 companies.
  • No correlation was found between median employee pay and a “better” Marx Ratio, given year-to-year fluctuations of net income.   
  • For companies which operated at a net loss and thus had negative ratios, shareholders got nothing, and workers still got paid.

Even the Times downplays the significance and accuracy of the ratio, instead promoting the tool for "understanding the differences between companies and industries.”