When researching labor costs as a percentage of sales, I found that typically 20-
35% of labor costs per gross sales is about average (How to Calculate the Employee Labor
Percentage, 2019). This surprised me as it was not something I had considered previously.
As for the publicly traded company for review, I chose Monster Beverage
Corporation. I chose this because they had a ratio of executive compensation that was
lower than most. Monster disclosed that its CEO pay was about 241 times its average
employee’s salary for 2021. The ratio being 241:1 (Rodney Sacks Monster Beverage
Corporation, 2021). Though this is a lower ratio than many other public companies, it is
still quite a difference comparable to the company’s median wage. I think that allowing
company exec’s to be compensated via company stocks is beneficial in that it is likely the
employee will conduct business in a way that is best for stakeholders. However, I do feel
that executive compensation should correlate closer to the average salary. I do not see the
benefit of compensating executives astronomically in comparison. Some of the top public
companies had ratios of about 1000:1. I think the benefit of this motivation is lessened by
the risk that the same executives may purposely manipulate financial results to improve
compensations packages. The article PCAOB, Auditors, and Executive Compensation lists
procedures that auditors should consider when auditing. These include inquiring with a
compensation committee of the client as well as a compensation consultant when
reviewing executive compensation contracts. It suggests it would also be worthwhile to
gather the client’s official policy and any related procedures regarding these
reimbursements (2013). I think that these are some effective first steps to audit
compensation packages for fraud or abuse.
References:
How to Calculate the Employee Labor Percentage (2019, January 31). In Chron.
Retrieved from https://smallbusiness.chron.com/calculate-employee-labor-percentage-
15980.html
Rodney Sacks Monster Beverage Corporation (MNST). (2021). In AFL-CIO
America's Unions. Retrieved from https://aflcio.org/paywatch/MNST
Quinlivan, S. (2013, May 8). PCAOB, Auditors and Executive Compensation. In Dodd-
Frank. Retrieved from https://www.dodd-frank.com/2013/05/pcaob-auditors-and-executive-
compensation/
