CEO-to-Worker Pay Gap Narrowest on Wall Street

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By Andrea Vittorio

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.

No Relief in Sight

“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.

Ready for Reactions

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

To contact the editor responsible for this story: Yin Wilczek at

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