Less Is More for Companies Reporting CEO-to-Worker Pay Gap

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By Andrea Vittorio and Jacob Rund

New disclosures showing the pay gap between corporate America’s top executives and typical workers are likely to take a less-is-more approach, according to a soon-to-be-released Mercer survey.

Virtually all (87 percent) of companies that are readying such reporting this year said they don’t plan to provide much more than the required ratio comparing what their chief executive officer makes to how much their median employee gets paid. That ratio is 200-to-1 or less for most of the 144 companies surveyed in February.

It’s a departure from the consulting firm’s last survey in August, when about half of companies drafting their disclosures said they planned to include more information than is required on their workforce makeup or other context.

Mercer’s Tom Langle, who oversaw the survey and briefed Bloomberg Law on the results, said companies’ “inherent conservatism” seems to have taken over.

“They don’t have as much to gain from more expansive disclosure as they do to lose if they put more into the public domain than they’re comfortable sharing,” Langle, a specialist in executive pay and incentive plan design, said.

Some companies, including Honeywell International Inc., have already issued their ratios, which are required by the 2010 Dodd-Frank Act and due to the Securities and Exchange Commission for the first time this year.

Minimalist Approach

“We don’t expect companies to go into extensive explanations” about their ratios, Andrea Orr, a partner in the corporate and securities practice at Bass, Berry & Sims PLC, told Bloomberg Law. Orr said she’s advising companies “to take more of a minimalistic approach” and focus on what needs to be disclosed.

However, some well-known companies with large workforces and atypical pay ratios may want to provide additional context, she said.

For the 13 percent of Mercer survey respondents that are planning to include extra information when they reveal their ratios, the most common detail they expect to offer is the median employee’s position or location. The next most cited details are information on the company’s workforce, such as how many employees are part-time or seasonal, and where in the world employees are located. A few companies said they would report a second ratio that covers U.S. employees only or other executives only.

“Whether those added ratios will be helpful is being debated,” Steve Seelig, an executive compensation consultant at Willis Towers Watson, told Bloomberg Law. He said it’s one of several messaging issues that companies are thinking about.

Many companies see communicating with employees, especially those paid less than the median, as their biggest challenge to complying with the rule, Willis Towers Watson found in a September poll.

“Nobody should really be surprised about what pay ratios are going to look like, but the information is being seen by employees for the first time,” Orr said. She said companies might want to prepare “talking points as to why they believe their pay strategies are fair,” if questions are raised.

To contact the reporters on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com; Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bloomberglaw.com

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