Lawmakers Push For Companies To Disclose Ratio Of CEO Pay To That Of Employees

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. So more than two dozen members of the Congress and Senate have written the SEC asking the agency to act immediately.

From the letter sent to SEC Chair Mary Schapiro:

[I]ncome inequality is a growing concern among many Americans. Incomes at the very top have skyrocketed while workers’ wages and incomes have stagnated. In fact, over the last decade, median family income actually fell for the first time since the Great Depression. 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. In 1980, CEOs of larges U.S. companies received an average of $624,996 in annual compensation, or 42 times the pay of typical factory workers. But by 2010, large company CEO pay had skyrocketed to $10.8 million, or 319 times the median worker’s pay.

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.

“Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen,” writes Public Citizen’s Bartlett Naylor. “The idea that firms have no idea what they pay their staff is ludicrous.”

Lobbyists have reportedly spent in excess of $4.5 million trying to have this provision swept under the rug. But after a year and a half of no action, here’s hoping that the renewed attention from lawmakers will be the kick in the butt the SEC needed.

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  1. atthec44 says:

    Oh look, more regulations on business.

    • denros says:

      sorry, did you have a thesis with that comment?

      regulations and taxes don’t destroy or drag down decent businesses. but a lax regulatory environment and a tax code which heavily favors creative accounting is a crutch for shoddy business models that rely on corporate welfare. we need economic Darwinism to clear out the underbrush of the old guard and let innovative, efficient and self-sustainable businesses prosper.

      • fsnuffer says:

        “we need economic Darwinism to clear out the underbrush of the old guard and let innovative, efficient and self-sustainable businesses prosper.”

        You mean like GM?

        • Loias supports harsher punishments against corporations says:

          Troll Fodder: Round 2

        • denros says:

          Yes, exactly like GM / the automotive industry, actually. The problem is, for the reasons I stated, many other industries are simply not competitive in the world market; letting our auto industry fail would have sunk our economy much further than it had during the great recession.

      • RvLeshrac says:

        The only time the US economy has ever prospered, excluding artificial constructs like the housing and dotcom bubbles, was the time of *MASSIVE* regulation from the late 1800s to the mid-1900s. The only gap in that prosperity was when the *UNREGULATED* banking market collapsed and took the rest of the economy with it.

    • Jawaka says:

      Yeah, there shouldn’t be any regulations at all on big businesses.

      We can completely trust them to do the right thing on their own, right?

    • evilpete says:

      Oh look, a Troll…

  2. fsnuffer says:

    What a waste of regulatory time.

  3. Derigiberble says:

    Quite frankly they should prohibit public disclosure of CEO pay. One of the big drivers of CEO and board pay increases has been that every company faces pressure to pay above the average (because you don’t want a less than average CEO, right?), which drives the average up which restarts the cycle.

    • Cat says:

      Very true, but as it is now it works like an Old Boy’s club. The boards and the CEOs all know what everyone else is getting paid.

      It won’t matter if it’s public knowledge. The Old Boys Club knows either way, and that’s what matters.

      • GrayMatter says:

        And, there are surveys (which you and I are not invited to see) that give all this information.

    • mischlep says:

      It’s useful information for a potential investor.

    • Coelacanth says:

      Maybe as a potential investor, people would like to know this information?

      A high ratio might indicate other systemic problems within the organisation that may be a harbinger for problems down the road.

    • suez says:

      How come this theory is never applied to any of the other positions in the firm? Wouldn’t you want the best in ALL positions in your firm? Why is it that the exact opposite is ususally in affect?

  4. ianzu says:

    Perfectly fine with this.

  5. XianZomby says:

    If a company wants to pay its CEO $1 billion/year, that’s the business of their board and shareholders. It’s not “the people’s money” that pays a CEO, or the money of the guys occupying Wall Street. Money paid to a CEO belongs to shareholders. If they think it’s a good move to use their money to pay their CEO that much, that’s their business.

    OWS or government — they might come next and squat on your front lawn because you make $99k/year but only give your kids a $5/week allowance. That is also none of their damn business.

    • PHRoG says:

      Not even close…

    • jesusofcool says:

      Your argument is sort of understandable with companies – but in the case of non-profits, I think this will be a brilliant idea. At many non-profits, CEO salaries are comparable to that of executives, even though programmatic employees are making poverty-level.
      While that may sit ok with the board of directors (who are often used to that level of salary themselves), it shouldn’t sit well with other donors or with institutional funders. I think this is a case where greater transparency is necessary.

  6. milkcake says:

    Who cares how much they are paying CEO? The ratio is useless.

    • Nigerian prince looking for business partner says:

      Shareholders and potential shareholders.

      • Bsamm09 says:

        I can It’s already public information. All key executives are listed on annual proxy statement.

    • exconsumer says:

      Well, potential employees might want to know whether or not they’ll be rewarded for helping a profitable company, or if their productivity will be redistributed to the upper echelons.

      • Bsamm09 says:

        How will this ratio show that in any way?

        • exconsumer says:

          It’s fairly self-evident.

          The higher the ratio, the more the potential employee can count on their productivity being funneled somewhere other than their own pocket.

          The lower the ratio, the higher the degree of meritocracy.

          I suppose you could have situations where a high-priced CEO was hired to save an otherwise dwindling company, but you could observe the ratio over time to discover how redistributive their compensation scheme is.

          • Bsamm09 says:

            This isn’t broken out by job type, level etc. There are many reasons why the ratio would lower over time and not have anything to do with the actual payments made to the workers based on their productivity or merit.

            There are way too many factors involved to actually use this to get an accurate idea on if your productivity will be rewarded. This ration can be manipulated easily.

    • RandomHookup says:

      Somebody does because it’s disclosed annually for all publicly-traded companies.

    • GrandizerGo says:

      I would want to know if I am supporting a huge fat cat that does nothing and yet lays off many workers when not taking a pay raise that year could have saved workers their jobs.
      I would also like to know if that company has had their hands out for public money when the big boys have given themselves raises when the company they are running is going down hill fast with no brakes.

  7. Jon says:

    Here, I’ll do the work for them, its pretty easy. translate this pseudocode to the database script language of their choice that their hr system runs on:

    Select med(salary) from hr.salary_table;

    There, its that easy.

  8. jsweitz says:

    WHO IS JOHN GALT?

  9. TuxthePenguin says:

    What version of the CEO’s pay should be included? Just plain salary/guaranteed income? Or what about bonuses earned during the year (which are set by the board)? Should it include all possible bonuses? What about stock options?

    The reason I ask is all three of those will lead to some wildly different numbers, especially stock options.

    And as for the median paid employee… does that include benefits? Does it include part-timers, leased employees (think contract to paid) and seasonal?

    Or how about we stop worrying about “income inequality” and instead focus on what is continuously driving up CEO pay? And do you really think publishing it is going to help it any? If anything, next time Pepsi goes to hire a CEO, think every CEO-applicant is going to walk in with the compensation number for Dr Pepper and Coca Cola?

    • RandomHookup says:

      You do know that the CEO compensation for those companies is already available in the annual report?

  10. Loias supports harsher punishments against corporations says:

    Annual salary divided by number of employees.

    Wow, so hard a calculation!

    Hell, a company’s W-2 wage data should be easily accesible, and can be used to calculate average wages. I think this would take your payroll department about 10 minutes.

    • denros says:

      I tried to find this information once, and was unsuccessful. Wondering where the average Joe can access such information (preferably online)

      • Bsamm09 says:

        Pretty much any info you would need is contained in a 10-K that is filed with the SEC every year.

      • Loias supports harsher punishments against corporations says:

        Financial information isn’t necessarily obtainable by the common person. Wage information, as an example, is confidential.

    • az123 says:

      Ah, but do you include health benefits, life insurance, 401K matching or employer paid pension funds? and a long list of other things or not? How do you include them relative to reporting to the IRS, do we report pre or post tax withholding…. There are a ton of variables… if you really stack all these items a person making $50K a year with a family of 4 could end up having an “income” of $80K+ which is a massive adder to the income of this person. The problem is these costs are largely fixed or capped for everyone, so that added money is about the same value when you get to the CEO who is making a lot more money, thus you are skewing the results considerably depending on what and how you report the money.

      • Loias supports harsher punishments against corporations says:

        All great questions, which can quickly and easily be factored in by the SEC making those decisions.

    • kosmo @ The Soap Boxers says:

      That would give you the mean, not the median.

      • Loias supports harsher punishments against corporations says:

        Fair enough,

        “The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one.”

        Then this only requires taking every employee’s W-2 numbers and sorting them in order of dollar amount.

        • Bsamm09 says:

          What about people who only work a few days due to being hired/fired/quit with out spending the whole year at the company?

  11. dolemite says:

    I believe it was 50x about 20 years ago, but 50 years ago was 2-3x. Now it’s more like 300X.

  12. DragonThermo says:

    Do “independent contractors” count toward the median? Do workers hired from a temp agency count toward the median? Do the custodians who work for a outside housekeeping company count toward the median? Do subsidiary employees overseas count toward the median? Do stock options — which have variable value between “a lot” and “zilch” — count toward one’s compensation? If the company discontinues their employer-subsidized health insurance and let employees resort to ObamaCare, how does that affect the ratio?

    The answer, naturally, make all mid- and low-level employee positions “temporary” or “independent contractors” so they don’t count as a “real” employee. And compensate your executives in a way that is not counted in the ratio.

    The only people up in arms about “pay inequality” are people who have no motivation to do what it takes to earn more money. They would rather sit in their drum circles, scratch their body lice, and spew scorn on everyone who works for a living and pays taxes which pay for their welfare checks, their food stamps, their ObamaCare, their Medicaid.

    Of course, Dear Leader and the Democrats have done all they can to run he country into the ground with their Marxist Revolutionary theories and their class warfare. it’s not like they are encouraging businesses to expand and hire people. Even “clean energy” companies that Dear Leader gives hundreds of millions up to billions of dollars to can’t stay in business long and go under.

    • Orrie says:

      I don’t normally spew vitriol in comments, but seriously, Go Fuck Yourself, then Do It Again. You deserve it most sincerely.

      When you’re finished, take a good look in the mirror at why you hold such an insane perspective, then take a good hard look at the way the ownership class of private enterprise has the 99% in a vise. Fat people, republican people, young and old. Few of us have any choice but to work for another, and they have all the choice in the world about how impoverished we are. Not everyone can “bootstrap” their way to their own business; we cannot all be self-employed or captains of industry (or politicians).

      I grant you, CEO vs. median pay is a symptom, not a root cause to be addressed directly… but maybe if it was on billboards these fuckers would be too ashamed to rob their trapped, human resources so goddamned blind year in and year out. That may be the only real remaining weapon of the middle and lower classes: shame.

      • Talmonis says:

        Oh no brother, it’s not the only weapons we have. In the past our fellow working men and women made wonderfully efficient devices specifically to deal with this sort of issue. If it gets bad, and people start to go hungry in large numbers? You’ll see them again.

    • InsertPithyNicknameHere says:

      I’m not going to address the rest of your comment, but I do take particular issue with this: “The only people up in arms about “pay inequality” are people who have no motivation to do what it takes to earn more money.” Myself and just about everyone I know, all of whom make healthy salaries and who work hard to do so, are concerned about pay inequality. Because if a company can afford to compensate the CEO at an obscene rate, why can they not offer all workers at least a living wage (and no, sadly, minimum wage is not necessarily a living wage)? Or keep more jobs onshore (because a number of jobs are moved offshore due to the ability to pay lower wages to offshore employees)? Don’t assume that people who complain about pay inequality are only those who “spew scorn on everyone who works for a living and pays taxes which pay for their welfare checks [and] their food stamps”

      • RandomHookup says:

        Well put. I agree that lots of people making good money working hard are very concerned about these issues for lots of reasons. I worry that highly paid CEOs do whatever is necessary to make the next quarterly number because there’s so much f-u money at stake. I worry that CEOs cut benefits and move jobs overseas because it’s better for his wallet. I worry that the race to the bottom will continue as CEOs (and boards) constantly compare compensation packages that are vastly exaggerated because everyone wants theirs to be bigger. I worry that CEOs lose all perspective of what it’s like to be an average, wage earning employee and can’t be effective leaders. I worry that the people in charge of companies end up being those who do the most financial engineering without knowing how to create one cent of value to the general economy.

        • Kuri says:

          The same can be said of politicians.

          Sad part is if anything happens to the company, the CEO is set for life still while the employees face nothing but uncertainty and the scorn of people like DT up there.

    • vliam says:

      The answer, naturally, make all mid- and low-level employee positions “temporary” or “independent contractors” so they don’t count as a “real” employee.

      There are a lot of companies that are *way* ahead of you on this point.

  13. NumberSix says:

    Why is that anyone’s business? Where is it written that CEO pay has to relate at all to median pay in their companies?

    • exconsumer says:

      Well, I specifically remember the fairy tale about CEO pay being so high because they help produce so much and grow the company and making profits boom . . etc. etc.

      In a world where compensation (supposedly) reflects productivity, why isn’t the pay of productive employees (who, remember, are by definition productive if the company is growing and profits are booming) rising along with the pay of the company head?

    • SteveinOhio says:

      Where is it written? The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

  14. AllanG54 says:

    The board and the stockholders don’t give a damn about how much the CEO makes as long as the company is doing ok. Mullaly of Ford just got $53.8 million in stock options but hey, Ford made the most money they ever made last year. So, he deserves it. I’ll bet there’s a bunch of VPs at Ford who probably make a bundle of dough as well so should we include the president of each division, and the head of legal. Why just the CEO. By the way…most of that compensation is listed in the annual reports so it’s public knowledge.

    • dolemite says:

      I don’t really think “they deserve it”. Do CEO’s today have it harder than they did 50 years ago? The only reason they are paid these ludicrous sums is all the boards are made up of CEOs of other companies and they all scratch each others’ backs. Their job is not 315x more difficult today than it was a few years ago.

    • theotherwhitemeet says:

      What if he only got a crazy low amount like 10 million dollars and 43.8 million went to the stock holders?

      • wrjohnston91283 says:

        It would work out to about 1.1cents per share. For most large companies, CEO salary by itself has so little bearing on stock price.

  15. crispyduck13 says:

    I don’t understand the point of this. Do they really think that if people knew how much more the CEO of McDonald’s is paid over their “median-paid employee” this would somehow affect their decision to eat there?

    This is a waste of money.

  16. donjumpsuit says:

    Frankly I am quite appalled at the supporters of the website “The Consumerist” and their opinions on CEO pay.
    1. All major corporations bitch and kvetch about taxes and tax loopholes, and consistently pay lobbiests to undermine the government policies and protocols regarding fair and balanced conditions for both workers, environment and the constant balance of “now” vs. “future”. Future takes into account spending a bit more money now to support alternative technologies and training workers based in America to produce goods and services. Rather most companies focus on the bottom line destroying the notion of the future to protect “the next earnings report” for share price and stockholders, for which CEO compensation is directly correlated.

    2. Companies, ESPECIALLY BANKS have to pay for undermining the entire financial industry and economy over the past 30 years. They pacify the public with $60 DVD players and in doing so undermine our entire way of life. NICE. When forced with collapse, they take a hand out from the taxpayers, and turn around and loan that payout to the government and make $30 billion off of it. Disgusting to say the least.

    3. I would have no problem with a CEO being paid 10 million dollars as long as it is taxed before any deductions 40%. When you win the lottery, it is taxed a huge percentage. There is no waiting to see how many deductions you can place on income, it is a separate event. If you want your big money, pay your fair share. Here is the problem. They get away from paying any taxes on that bonus, while the employees of the company, who have seen their income shrink, inflation increase the price of everything they own, pay a larger share of ‘sales tax’ and ‘state tax’, and don’t own 10 properties and stocks that have underperformed so they can deduct that from their true income. The disproportionate nature of the whole thing is disgusting.

    Here is the problem. When someone donates 1 million to charity, they want to do it anonymously because it is considered uncouth to say you are kind. Also it’s in bad taste to publicize any charity or good will. However when someone wins the lottery or in vegas, there is a huge party thrown and everyone cheers and everyone knows. It’s disgusting quite frankly

    • Bsamm09 says:

      #3 — you are dead wrong. Show me ANYWHERE in the IRS code where lottery winnings are taxed at a special rate. I would love to see that. They may withhold that amount when it is paid to them but you can get that back when you file taxes. It is not a special tax rate. It is a guesstimate that people use to talk about how much they get after taxes.

      The rest of your idiotic ramblings on income tax are just as stupid and ill-informed.

      The 10 properties? You cannot take a loss deduction on rental properties after you make $150k unless that is your trade or business.

      Underperforming stocks (Capital Loss) Limited to $3,000 a year and remainder is carried forward. In order to claim it you must have sustained it. In order to get a $1,000,000 capital loss you have to LOSE a million dollars.

  17. Hi_Hello says:

    I don’t like this… if they are going to do this… why not show where everyone stand in a company?

    I would like to see where I stand.

    plus median number is useless.
    1,1,1,1,100,100,100

    median 1…
    those are the wait staff who doesn’t min. wage but below min wage. the rest they get from tip, it didn’t get calculate. the 100 are the ppl getting hourly rate. are you saying the got on top is making 100x more than the guy on bottom and the company is screwing everyone??

  18. kosmo @ The Soap Boxers says:

    So they fire the lowest paid employees in order to boost the median …

  19. exconsumer says:

    A great idea; the compensation of the workers of successful companies should rise along with that of the head of the company.

    Why do we pay CEO’s the big bucks? Because they headed the company that made the big bucks. That company made big bucks because it had capable, successful employees. The CEO may have created the strategy, but those beneath him or her carried it out. Profits rise, pay should rise for everyone involved. Meritocracy and Capitalism at work . . . and yet . .

    Here I see overwhelming doublethink when it comes to CEO/Worker pay. The same people that defend the high pay of a CEO will say they deserve it for growing the company, and yet it never seems to occur to them that the employees of that company are also responsible for that growth, and that it’s also okay to pay them. When it comes to those on the front lines making more, well, that’s somehow immoral. The profit these productive individuals should have their profit confiscated and given to someone else.

    Conservatives: The New Communists. (because it’s okay if you only redistribute to a SMALL group of people).

    • Bsamm09 says:

      We pay CEOs big bucks because they are in short supply. How many CEOs are employed by the companies on the S&P 500?

      500

      How many entry level employees are employed by the companies listed on the S&P 500?

      I’d say in the millions.

      • RandomHookup says:

        I think you can find more than 500 people qualified to run the Fortune 500.

        By definition, there can only be 500 CEOs of Fortune 500 companies, but that doesn’t mean people capable of doing it are in short supply.

        • exconsumer says:

          And while I admit that a person qualified to run a large company is indeed rare; the person who can run and improve a large company by his efforts alone is non-existent.

      • exconsumer says:

        So, CEO pay is not related to their productivity or profitability. It seems we are in agreement.

      • suez says:

        Who says they have to be capable? With such lucrative and mind-boggling Golden Parachutes, there’s more incentive to be shitty at the job, be dismissed, and then buy an island somewhere to live off the severance package. People are LINING UP for the chance to drive firms into the ground.

      • SteveinOhio says:

        You have the supply and demand backwards.

        The supply of CEO’s is not 500, that’s the number of CEO jobs needing to be filled. IOW, the S&P 500 is a buyer of CEO services, for which demand is constrained at 500. The supply would be the number of CEO-capable workers. As an investor, one thing that is frustrating about the high CEO pay is that I’m not so sure there is a marginal improvement from the 400th best CEO in the USA to the 2000th best CEO but companies pay them as if there were. As a result, I think many publicly-traded companies are vastly overpaying for services that could be provided by any number of capable mid-career finance guys with management experience, but so many companies are afraid of making the big mistake that they try to follow conventional wisdom by paying the same way as everyone else, identifying candidates the same way as everyone else, competing for the same talent as everyone else, etc. The behavior patterns are awfully similar to the way professional sports clubs operate.

        I keep waiting for “Moneyball” to catch on with guys who actually work with money. There are CEO’s out there who do incredible work, but I can’t help but think that the current corporate structure is built in large part to keep an outsized portion of the gains of capitalism in as few hands as possible because there’s no other way to explain the ridiculous compensation schemes currently used by virtually all publicly traded companies of a certain size.

        How else to explain a “Heads I win by a ton, Tails I still win by a good amount” approach to pay vs. performance?

  20. Blueskylaw says:

    “Companies that have opposed the regulation say that it would somehow be difficult to figure out the median pay of their staff.”

    This the best excuse they could come up with? If they have 5,000 employees, take the yearly pay of each employee then divide by 5,000.

    Now where is my promotion, bonus, and golden parachute package?

    • InsertPithyNicknameHere says:

      Actually, that would give the mean, not the median. The median is the number that falls in the middle of a sequential group of numbers. So, if the hourly rates were {10, 12, 17, 45, 112}, the median would be 17, not 39.2. It’s probably a bit more fair, because it prevents a few very very high (or very very low) salaries from skewing the results.

      • kosmo @ The Soap Boxers says:

        Especially since the salary with the most ability to skew would be the CEO’s :) (A lowly paid employee has a fairly limited ability to affect the mean, because there’s a limit to how low their pay can go).

        This is what what occur if the mean were used:

        If you have 100 employees who make 10,000 and 1 employee who makes 100 million, the mean would be 1 million and the ratio would be 100:1.

        If you have 100 employees who make 10,000 and 1 employee who makes 500 million, the mean would be 4.96 million and the ratio would be 101:1. Not much of a change …

        Whereas the median in either case is 10K, and the ratio rises from 10,000:1 to 50,000:1 when the CEO gets the raise.

        • Blueskylaw says:

          Cut off 5% of the left and right numbers then take the median.

          • InsertPithyNicknameHere says:

            For calculating a median salary, removing 5% of the people from each end wouldn’t change anything. If you have 100 numbers, and find the middle one, it’s still going to be the same figure if you start counting at 6 and stop counting at 95 – the middle number is still the same number. Removing the top and bottom 5% only impacts if you’re talking about a mean, not a median (and that’s why rules and regulations don’t genereally use the term “average”, because “average” can be defined as either a mean or a median, or even a mode. A median has a specific definition, as the value that falls in the middle of a group of sequentially-arranged numbers).

  21. farker22 says:

    b/c this really reforms anything – why arent people in jail for embezzlement?

  22. costanza007 says:

    So how about the CEOs that get paid an annual salary of $1, are given stock options? Fun!

  23. daynight says:

    CEO’s / Board members / executives who give themselves large salaries do so at the expense of the company. That is conflict of interest. Were we talking about a biological system, no one organ, even the brain, can take more than its appropriate need. Yes, CEO’s are scamming the company and the stock holders of money. Sharing it more equitably helps the company and the shareholders.

  24. DanKelley98 says:

    Yeah, let’s also widely publicize the perks our lawmakers get vs. us regular folk…..

  25. Maltboy wanders aimlessly through the Uncanny Valley says:

    While they’re on on their high horse, maybe Congress could take five minutes to pass legislation to put an end to their insider trading privileges! (Pelosi says WTF!!!!!!)

  26. SteveinOhio says:

    I actually don’t think that it matters to the average person what this ratio is beyond the chance to be internet-outraged about the discrepancy.

    I think it matters quite a bit to the investors what the C-level management team gets paid, which they already do because that is a required disclosure already. For publicly-traded companies, I think the best reforms Congress could make would be to empower and enforce shareholders’ rights. Typically, even a very large shareholder gets very little say beyond rubber-stamping the pre-approved Board of Directors.

  27. Matthew PK says:

    That’s because the concept of “row number” is abstract in SQL, resulting from the query.

  28. Matthew PK says:

    This law appears deliberately designed to create tension between employees and their CEOs.

  29. FrugalFreak says:

    YES!

    • FrugalFreak says:

      This shows the systematic push to devalue and povertize workers. It should show who pushed the bean counters, what ideaolgy they followed and what percentage political party voters participated in this fleecing of America.

  30. baristabrawl says:

    Isn’t this done internally through non-discrimination testing?