Stay current on changes and developments in corporate law with a wide variety of resources and tools.
The pay gap between top executives and typical workers is narrowest on Wall Street, according to a new survey from consulting firm Mercer.
Mercer polled companies on their readiness to report a ratio comparing how much their chief executive officer gets paid to how much their median employee gets paid. Banking and financial firms that have estimated theirs responded with the lowest ratios in the survey, at mostly 200:1 or less. The highest estimated ratios in the survey, at mostly 400:1 or more, came from retailers and wholesalers of consumer goods, who tend to employ more part-time workers with low wages.
“It’s exactly what we expected,” Gregg Passin, a senior partner at Mercer and leader of its North American executive compensation practice, told Bloomberg BNA. “I don’t think it’s what the legislators who put this into Dodd-Frank were expecting.”
A requirement for public companies in the U.S. to disclose their CEO-to-worker pay ratios was folded into the 2010 Dodd-Frank Act amid claims that executive pay incentives fueled excessive risk-taking in the run-up to the financial crisis.
Republicans and business groups have sought relief from reporting the ratios, which they say are meant to embarrass CEOs and won’t be useful to investors. But, with disclosures due to the Securities and Exchange Commission next year, time is running out for corporations to ready themselves for such reporting—and the reactions that come with it.
“A company that doesn’t know where its pay information is coming from, or doesn’t have a line of sight to it, and doesn’t have a game plan for how to attack those issues, is probably in trouble at this point,” Steve Seelig, an executive compensation consultant at Willis Towers Watson, said.
The majority of the nearly 150 companies Mercer surveyed in late July and early August have estimated a ratio, and half of them have started drafting disclosures around it. Mercer said that more companies might have begun drafting disclosures if they hadn’t been waiting to see if the SEC or Congress would relieve them from reporting.
Michael Piwowar, the commission’s Republican member, opened the pay ratio disclosure rule up for review earlier this year when he was acting chairman. The commission could try to delay the rule or rewrite it, as groups including the Business Roundtable have asked, to exclude workers located outside the U.S. and those that don’t work full-time. But without a full-slate of commissioners, the SEC’s lone Democrat Kara Stein could block the quorum needed for agency action just by sitting out. A spokeswoman for the commission declined to comment.
The Roundtable, a group for CEOs, would prefer getting rid of the pay ratio rule entirely. That would take legislation. A Republican-backed bill that includes a repeal of the rule has passed the House but is considered dead on arrival in the Senate.
“It’s looking more and more like companies will need to disclose a CEO pay ratio next year,” said Matthew Goforth, research manager at Equilar, which provides executive compensation benchmarking and tracking tools. The rule applies to companies’ next round of proxy statements, meaning ratios should start coming out in March, Goforth said.
Even opponents of the disclosure rule like the Center on Executive Compensation recognize that companies need to be ready for it. The center is part of a D.C.-based trade association for chief human resource officers at more than 360 large companies.
“Our position on the ratio continues to be that it’s not a useful disclosure,” Shelly Carlin, the center’s executive vice president, told Bloomberg BNA. “But we are encouraging and supporting our members to prepare for implementation, both in calculation and also increasingly in communication of the ratio.”
About three-fourths of companies surveyed by Mercer haven’t started thinking about communications yet. Of those that have, employees and other internal audiences are their top priorities, more so than investors, the media, or labor unions.
“Employees already know how much more CEOs make,” Brandon Rees, deputy director of the AFL-CIO’s investment office, said. The average CEO of an S&P 500 company made 347 times what the average rank-and-file worker made in 2016, according to the federation of labor unions’ latest analysis of available data. That’s up from a ratio of 335 to 1 in 2015 and well above the ratios seen in prior decades.
“The benefit of this disclosure is that it’s encouraged boards and management to think about these issues and how they approach human capital in their firm,” Rees said. The labor fund is part of a group of institutional investors with more than $2.8 trillion in assets that recently asked the SEC to make listed companies provide more information on human capital issues such as workforce diversity, pay practices, and corporate culture.
To contact the reporter on this story: Andrea Vittorio in Washington at email@example.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)