Microsoft, CVS to Explain How Worker Pay Factors into CEO’s

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By Andrea Vittorio

Microsoft Corp. and CVS Health Corp. are among a handful of companies that have pledged under investor pressure to explain how their chief executive officer’s pay factors in pay for the rest of the workforce.

New York State’s pension fund is calling on companies to disclose the information on worker pay that Microsoft, CVS, Macy’s Inc., TJX Companies Inc., and Salesforce.com Inc. have pledged to provide. Archer-Daniels-Midland Co. and several other companies the fund invests in face a similar request.

“We’ve seen a growing disparity in corporate income in the United States for years, with CEO pay rising dramatically while wages for most other company employees have remained flat,” New York State Comptroller Thomas DiNapoli, who oversees nation’s third largest public pension fund, said in a statement. He’s filed shareholder proposals asking corporate boards to consider pay for rank-and-file workers when setting executive pay, rather than benchmarking only against other CEOs.

DiNapoli and close to 50 other institutional investors have also sent letters asking companies in the S&P 500 index to go beyond reporting required ratios comparing CEO-to-worker pay by clarifying who that worker is. It’s part of a spotlight on so-called human capital as companies compete to recruit and retain employees in an increasingly knowledge-based economy.

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“Companies are quick to say their employees are their greatest asset,” said Brandon Rees, deputy director of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)'s investment office. The labor fund also signed the investor letter on pay ratios. “Given today’s knowledge-based economy, that’s certainly true,” Rees said.

But while companies provide “pages of disclosure” on how much one employee—the CEO—gets paid, “investors are told very little about how a company compensates workers as a whole,” he said. Companies ought to provide information including job functions, locations, and skill sets, Rees said.

Companies must report pay ratios under a rule written in the wake of the 2008 financial crisis that took effect this past year. CEOs of S&P 500 companies have reported making about 280 times more than their typical workers on average, according to data compiled by Bloomberg.

Some companies explained in their reporting who their rank-and-file worker is. At clothing retailer Gap Inc., it’s a part-time sales associate in Alabama who didn’t work a full year. That made Gap’s pay ratio 2,900-to-1. Others such as Amazon.com Inc. and Facebook Inc. provided pay figures without any details identifying the worker.

Concerns Overblown

“Right now, it’s hard to figure out who the worker is unless the company specifically talks about it, and they’re not required to talk about it,” said Tharindra Ranasinghe, an accounting professor at the University of Maryland’s business school. Most companies took a less-is-more approach to the first round of disclosures and Ranasinghe says they’re likely to do the same in 2019.

The ratios were expected to cause a stir among media, investors, and workers, especially those paid less than the reported rank-and-file figure. But those concerns were largely overblown, with income inequality overshadowed by a focus on other gender-based pay gaps and the #MeToo movement.

“This wasn’t as big of a deal or exercise as people thought it would be,” said Deb Lifshey, a managing director at executive compensation consultant Pearl Meyer.

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