In March, a group of two dozen lawmakers prodded the Securities & Exchange Commission to finally get around to enforcing Section 953(b) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to disclose the ration between CEO pay and the median pay for the rest of their employees. Now that the SEC is prepping to release those rules, these companies are suddenly claiming a lack of basic math skills.
From the Wall Street Journal:
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 first point is echoed by the head of human resources for huge consulting firm Accenture. “The amount of work to calculate the ratio would be really quite incredible,” she tells the Wall Street Journal.
But a VP at Whole Foods, which has had a cap tying executive pay to employee pay for a decade, tells the paper that’s all a lot of hogwash: “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.”
There is nothing about Section 953(b) that regulates or ties CEO pay to the level of employee pay. It only requires that the ratio is disclosed to investors.
But the president of the U.S. Chamber of Commerce’s Center for Capital Markets claims that “The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies.”
The Journal cites a 2010 joint study by Northeastern University’s business school and Bentley University that found a relationship between increasing CEO pay and decreasing employee productivity.
Senator Robert Menendez of New Jersey, the lawmaker behind the provision says investors have a right to know how much a CEO makes relative to the rest of the people in the company.
“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 Menendez.
Back in March, Public Citizen’s Bartlett Naylor said it was “ludicrous” that these global firms were complaining about the difficulty of figuring out median pay.
“Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen,” said Naylor at the time.
Firms Resist New Pay-Equity Rules [WSJ.com]