Here's one story on it: http://www.npr.org/sections/thetwo-way/2015/08/05/429628037/sec-to-vote-on-requiring-companies-to-disclose-ceo-pay-ratio
What do you think of the new CEO Pay Ratio Rule?
Answers
It will be interesting to see what unintended consequences occur from this.
1
YES! "Feelings" over substance. That's all this type of action is.
That's also what government in the US has become all about. Interfere in any and everything in the interest of people's "feelings" of fairness or lack there of. Throw some legislation out, assign enforcement to a federal department who issues regs galore without any measure of efficiency or, God forbid, cost effectiveness or the burden this creates on economic activity.
Then we can all breath a sigh of relief while they say, "There now. Don't you feel better?"
The same people who complain about the "excessive CEO pay" will go online and buy tickets for a pro sports game that cost them hundreds if not thousands of dollars and issue nary a peep about the equally decadent contracts that many pro sports figures receive.
In the meantime, over in the poor neighborhoods of America, youth are wasting their time playing those sports with dreams of "going pro" to get their ticket out of poverty while eschewing academic achievement that might put them on the more likely path of to one of those overpaid CEO positions.
And, their culture encourages this while they badmouth business success and encourage government efforts to "punish the rich".
Don't they have kids read Huxley or Orwell any more? Isn't anyone paying attention?
It is an excellent rule that is long over due. As someone who has climbed that ladder from the bottom step to CEO I can not understand how a CEO today can look down from the top of today's pay scale and say this is ok. Did they completely forget the people they worked with and who supported them as the climbed up the rungs to the CEO spot. How they look in the mirror and say "everything is fine and we don't need that rule" is beyond my comprehension.
The following from the Huffington Post on April 30th 2013 says it all.
The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.
More compliance cost with little purpose. Compensation for the CEO and other top execs is already disclosed in the financial statements of public companies. The new information is going to be what -- a ratio to be used to publicly shame the big, bad businessmen?
Company A - CEO makes $5M, median employee makes $40K - ratio of 125 times.
Company B - CEO makes $5M, median employee makes $50K - ratio of 100 times.
Does that mean the CEO makes too much or the line employee too little? As an investor, what am I to do? Do I shun Company A? Maybe CEO A has turned his company around, maybe he has saved the jobs of those average employees, maybe A is now generating investor returns of 15%/yr. Maybe Company A is in a business with a disproportionate number of low-skilled workers compared to Company B. Maybe Company B has already outsourced many of its low-skilled jobs.
No doubt the ratio between the C-suite and the line employees can be absurd but do we really feel that much better about B's 100 times than A's 125. For most companies, it would take an extraordinary effort to meaningfully raise the median wage and it would come with a very negative impact to the bottom line. So I guess that's how we bring the ratio back into line -- increase wages for most employees, allow the bottom-line to crash and then watch shareholders fire the high-paid CEO for poor returns. Problem solved! Of course we need to hire a replacement CEO (for less money) and tell him he needs to increase the bottom line without affecting labor cost. "Oh, and if you're good at your job, we can't reward you because it'll throw off our ratio again -- and then we'd have to fire you. Good luck!"
If we're going to add more disclosure, I'd much rather see a correlation between CEO comp and long-term shareholder returns. Let's make sure the CEO is focusing on a future where those line employees still have jobs.
I like the full disclosure aspect of the CEO compensation, but don't understand how this ratio relates to performance. Sad that CEO comp is perceived as way too high to justify by results, and the consensus on that has led to this as public policy.
After reading the article all I can say is if you aren't happy with the pay inequality you have several options:
1. Don't buy the stock
2. Don't buy the products
3. Live with it (and I agree some salaries are out of touch with reality, but then again (as Mr. Trump said last night in response that he had 4 companies go bankrupt, he followed the law, and right now the law doesn't limit compensation).
I also find it interesting its only for public companies, because I'm quite sure that if one were to look at privately held firms, the inequalities would be far far worse on the those that are egregious (but then again, the CEO many times has his or her own capital involved).
I think they need to make compliance with the rule easier; it should only take a payroll report to figure this out. But transparency is always helpful.
Make the information available front and center, consolidated and comprehensive (not buried in multiple places throughout the annual report and requiring a degree in forensic
Filed Under:
Human Capital