The Wall Street Journal reports that the nation's senior corporate executives are ready to do battle with a provision of the 2010 Dodd-Frank financial legislation requiring public companies "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."
While the legislation has been passed and signed into law, it remains a major point of contention in the political arena, and the Securities and Exchange Commission (SEC) has not yet issues rules for implementation. A proposal is supposed to be issued by the SEC by the end of July, with final rules adopted by the end of the year.
According to the story, "Since the bill's passage, the SEC has received more than 200 letters about the internal pay equity provision. Companies say they have a rough sense of their internal pay ratios, but they argue that their global workforces and varied payroll systems make calculating the median cumbersome, if not virtually impossible. What's more, they say, disclosing pay ratios would make them easy targets for CEO-pay critics."
"The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies," David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets, tells the paper.
The story goes on:
"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.
"Wide gaps in pay can affect employee morale, productivity and turnover, several studies have found. In the 1980s, management guru Peter Drucker advocated capping the ratio of CEO pay to average worker pay at 20 to 1. Beyond that, resentment creeps in, according to the think tank Drucker Institute. In 2010, a joint study by Northeastern University's business school and Bentley University found that employee productivity decreases as the disparity between CEO and worker pay increases."
While the legislation has been passed and signed into law, it remains a major point of contention in the political arena, and the Securities and Exchange Commission (SEC) has not yet issues rules for implementation. A proposal is supposed to be issued by the SEC by the end of July, with final rules adopted by the end of the year.
According to the story, "Since the bill's passage, the SEC has received more than 200 letters about the internal pay equity provision. Companies say they have a rough sense of their internal pay ratios, but they argue that their global workforces and varied payroll systems make calculating the median cumbersome, if not virtually impossible. What's more, they say, disclosing pay ratios would make them easy targets for CEO-pay critics."
"The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies," David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets, tells the paper.
The story goes on:
"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.
"Wide gaps in pay can affect employee morale, productivity and turnover, several studies have found. In the 1980s, management guru Peter Drucker advocated capping the ratio of CEO pay to average worker pay at 20 to 1. Beyond that, resentment creeps in, according to the think tank Drucker Institute. In 2010, a joint study by Northeastern University's business school and Bentley University found that employee productivity decreases as the disparity between CEO and worker pay increases."
- KC's View:
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I have no doubt that such information will be used as a political cudgel, but that doesn't mean that it won;t be a useful tool for investors. On the contrary, this is a piece of information that could be hugely persuasive to some investors. Not all, but some. And I think that coming after a time when a lot of highly paid executives managed to walk away from failing companies with huge pay packages, even as a lot of people who worked for them lost their jobs, this seems like a reasonable piece of information to put front and center.
Not to say that every company should have the same metrics, nor that I would never invest in a company with a big disparity. But I'd like to know. It would tell me something.
CEOs may not like it very much. The Chamber of Commerce may hate it. And they may all spend a lot of money trying to fight the rule. But I think that this is a rule that looks one way from the corner office, and another way from almost everywhere else.
I, for one, might be willing to make investment decisions just based on what companies fight the rule.
