Show Us The Money! Proposed Law Would Reveal CEO-To-Worker Pay Ratio

August 28, 2013  |  

Corporate fat cats may soon be forced to reveal what’s stuffed in their deep pockets. If a rule proposal, pushed by the Securities and Exchange Commission (SEC) is passed, companies will be required to disclose their CEO-to-worker pay ratio, The Washington Post reports.

This nudge for better transparency of pay records was part of the 2010 Dodd-Frank Wall Street reform initiative, but it has been delayed from going into effect because the formula for determining CEO-to-worker pay was still in development.

Since records have shown that CEOs are making nearly 300 times the average worker, this new law is meant to “shame companies into changing what they pay their executives or what they pay their employees,” WaPo adds.

Would this even be effective, though? If you can recall, the Dodd-Frank efforts also allowed shareholders to vote on CEO pay packages, but investors always approve, no matter how incredulous their salaries are. “There’s not a lot of energy [from investors] about doing anything with it,” said Todd Sirras, an executive compensation consultant.

The Washington Post article suggests that the SEC’s efforts in forcing disclosure of CEO-to-worker pay ratios won’t change anything, but it might stimulate more outrage:

The ratios will involve more explanations than real self-examination. […] Moreover, some will inevitably and unfairly compare the ratio, say, at Wal-Mart (where the CEO of course makes much more than hourly retail workers do) against that at Google (where the differential isn’t quite as large between the CEO and the company’s many highly paid engineers).

Businesses, of course, greatly oppose the proposal; they argue that “it’d [be] expensive, time-consuming and difficult to calculate the ratio.” And secondly, there is a “reluctance to divulge such company-level specificity.”

If higher transparency between CEO and worker pay is revealed, I do agree that it will spark some tensions, but it will not, unfortunately, narrow the enormous pay gap between a corporate tycoon and your average worker.

Thoughts?

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