Apparently, most corporations would rather stockholders not be aware of executive compensation agreements.
Section 953(b) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires publicly traded companies to disclose the ratio of CEO pay as a proportion of the median-paid employee at the firm. And yet, the Securities & Exchange Commission has yet to even propose a regulation for public comment, which would get the ball rolling on enforcing the act.
Companies that have opposed the regulation say that it would somehow be difficult to figure out the median pay of their staff. But the lawmakers point out that even the SEC’s former chief accountant says this should not be too complex a calculation for a business to make.
(click here to continue reading The Consumerist » Lawmakers Push For Companies To Disclose Ratio Of CEO Pay To That Of Employees.)
Oh, boo hoo. Math is hard1
At issue is a rule that could force them to disclose the gap between what they pay their CEO and their median pay for employees, a potentially embarrassing figure that many companies would like to keep private.
…”The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies,” says David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets, which opposes the measure.
Consulting-firm Accenture says that figuring out the median among its 246,000 employees across 120 countries and various payroll systems would be expensive and slow. “The amount of work to calculate the ratio would be really quite incredible,” says Jill Smart, chief human resources officer for Accenture. The U.S Chamber of Commerce, American Insurance Association and National Retail Federation have expressed similar concerns to the SEC on behalf of members.
But companies whose boards already constrain the ratio between the CEO’s salary and that of the average worker say the task isn’t so complex.
“It doesn’t take months and months and millions of dollars to calculate this. It’s a relatively straightforward process that takes a few days,” says Mark Ehrnstein, a vice president at Whole Foods Market which instituted an executive salary cap a decade ago.
Whole Foods keeps a database that tracks each worker’s salary and bonus to ensure that no employee makes more than 19 times the average. That means the typical full-time worker earned about $38,000 last year, and no one earned more than $721,000. But the cap doesn’t factor in stock options or pension benefits, which would be required under the proposed rule, and it considers average, rather than median, salaries. A small number of other firms, including financial-services firm MBIA Inc. and Bank of South Carolina Corp., provide executive pay figures and average or median employee pay in their proxy filings.
“It’s embarrassing that they pay their CEO 500 times what they pay their typical worker, especially if the company’s performance has been mediocre,” says New Jersey Sen. Robert Menendez, the provision’s author.
Total direct compensation for 248 CEOs at public companies rose 2.8% last year, to a median of $10.3 million, according to an analysis by The Wall Street Journal and Hay Group. A separate AFL-CIO analysis of CEO pay across a broad sample of S&P 500 firms showed the average CEO earned 380 times more than the typical U.S. worker. In 1980, that multiple was 42.
(click here to continue reading Firms Cringe at Revealing CEO-Worker Pay Gap – WSJ.com.)
In other words, most public corporations would rather not be transparent about what their CEOs would make because it makes the Board of Directors look like corrupt oligarchs. Cry me a river. And I find it hard to believe that reporting this information would be a burden. Take the payroll, dump it into a spreadsheet, and calculate the median! What’s tricky about that? The hardest part would be getting payroll information for a large multi-national corporation, but I doubt it would all that difficult to do.
Batlett Naylor wrote, back in March:
In the face of intense industry lobbying, the SEC has yet to propose a rule for public comment. A simple disclosure figure should be well within the SEC’s ability. Corporate America’s antagonism may be revealing but should not be compelling.
The financial industry argues that identifying median pay will be difficult. Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen. The idea that firms have no idea what they pay their staff is ludicrous.
CEO pay has swollen from 42 times that of average factory workers in 1980 to 319 times in 2010. Studies show morale and productivity problems in the face of disproportionate CEO pay.
The congressional letter states that: “Income inequality is a growing concern among many Americans. … Incomes at the very top have skyrocketed in recent years while workers’ wages and incomes have stagnated. … And while comprehensive data will not be available until this provision takes effect, there is no question that CEO pay is soaring compared to that of average workers.”
A Public Citizen report last year found that industry lobbyists contesting this rule have spent more than $4.5 million trying to avoid disclosure. In addition, the U.S. Chamber of Commerce has sent two letters to the SEC opposing this measure.
(click here to continue reading Will the SEC stand up to the financial industry’s disingenuous smokescreen? « CitizenVox.)Footnotes:
- not really [↩]