Median Employee Compensation

Median employee compensation is the total pay of one employee — or of one employee selected from a group of substantially equivalent employees — sitting at the midpoint of a company’s pay distribution. Half the measured workforce earns more than that figure and half earns less. It is disclosed so that the chief executive’s pay can be stated against something, and it is the denominator of the CEO pay ratio under Dodd-Frank Section 953(b) and Item 402(u) of Regulation S-K.

The median is not the average, and the difference matters. The average is total payroll divided by headcount, so a small number of very highly paid employees pulls it upward. The median is positional: it identifies the middle of the distribution and is unaffected by how far above or below the midpoint the extremes sit. A company with a long upper tail of executive and specialist pay can have an average well above its median while reporting the same workforce.

The rule does not prescribe a single way to find the median. A company may rank the total compensation of its entire measured population and take the middle, apply a statistical sampling method, or use another reasonable approach, and it must describe the method and its assumptions in the proxy. Where the population produces several employees at the same point, the rule permits the company to identify a group of employees whose compensation is substantially equivalent and select one of them as the median employee.

What the population includes is a company choice the proxy has to state. The rule permits a de minimis exclusion of non-U.S. employees, allows part-time, seasonal and temporary employees to be covered by specified adjustments rather than measured on the same footing as full-time, full-year staff, and allows pay to be annualized for permanent employees hired partway through the year. Cost-of-living adjustments are also permitted when employees in different jurisdictions are measured together. The population is tied to people the company employs, so independent contractors and workers engaged through a staffing agency generally sit outside it.

The measurement basis is deliberately aligned with the executive disclosure. The median employee’s pay is totaled using the same methodology the Summary Compensation Table applies to named executive officers — salary, incentive compensation, the grant-date fair value of equity awards, and other compensation. That is why the disclosed figure can look unlike what the employee received in cash during the year: equity is counted at the value assigned when it was granted, not when it vested or was sold.

A company does not have to identify a new median employee every year. The rule permits the same median employee to be used for up to three years, provided there has been no significant change in the employee population or in employee compensation arrangements. A large acquisition or divestiture, a restructuring, or a broad change in how the workforce is composed requires a fresh identification sooner — which is one reason the figure can move for reasons that have nothing to do with anyone’s pay changing.

The number is a property of the workforce as much as of the pay program. A company that employs a large share of its people in part-time, seasonal or entry-level roles will show a lower median than a company in the same industry whose comparable work is done by contractors or by a franchised or outsourced workforce, even where the pay for equivalent jobs is the same. Reading the figure against the company’s own headcount, geography and business model is what makes it interpretable; reading it across companies without that context does not.

The figure also says nothing about how pay is spread above and below the midpoint. Two companies can report the same median while their distributions differ substantially at every other point, and a rising median does not show that individual employees received raises — it can reflect a different population, a different determination date, a different measurement method, or the selection of a different individual from a substantially equivalent group.

Flex's identified median employee earned $12,939 in total compensation for fiscal 2026, the denominator behind its pay ratio disclosure.