Maybe this is information you don’t want to know. It might plunge you into a deep funk from which no
amount of Prozac could spring you.
Just look at the gross data. According to Equilar, an executive compensation research firm, the median pay package of an S & P 500 chieftain totals $7.5 million — about 187 times as much as the average worker. The AFL-CIO found in its own study that chief executives at 299 large companies took home a combined $3.4 billion in 2010, about $11.4 million each. That’s some 344 times the earnings of the average worker who grossed about $33,000 that year, by the union’s reckoning. Forty years ago, by the way, CEOs earned about 28 times as much as the average worker.
Knowing what’s going on at any particular company — which employees and investors both might find interesting — is pretty difficult, however, given all Byzantine pay arrangements granted to executives, including stock options, deferred compensation, bonuses, incentive awards and pensions, not to mention perks like country club membership and lavish expense accounts. And, if a company is a multi-national with 250,000 workers in 53 countries, determining the median pay of the average schmo is a daunting task for anybody who has access only to public records.
Thanks to a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, however, all will be revealed. Section 953(b) requires a company’s proxy statement to include: the median of the annual total compensation of all employees, except the chief executive officer; the annual total compensation of the chief executive officer; and a ratio of the two. (Section 953(a), by the way, requires a showing of pay versus performance, for example, the increase in a CEO’s compensation compared to the increase — or decline — in share values, dividends and distributions to investors.)
Disclosure of this data would seem pretty innocuous, and in fact, when Congress was wrangling over Dodd-Frank last year, few companies made so much as a peep (or a tweet) about it. Now, however, about 80 corporations, including American Airlines, General Dynamics, General Mills, IBM, Lowe’s and McDonald’s are raising a big stink about the measure. Leaping to do their bidding, the House Financial Services Committee recently passed a bill to the full House repealing Section 953(b). Called “The Burdensome Data Collection Relief Act,” it has received the support of the Center on Executive Compensation, the U.S. Chamber of Commerce and the National Association of Manufacturers.
What’s their case? Well, here are their points and my rejoinders:
The data are too costly and complicated to collect. Says the Center on Executive Comp: “Global companies often have tens of thousands of employees and dozens of disparate payroll systems across dozens of countries. The elements of an employee’s compensation vary considerably among countries because of different cultures, benefit mandates, competitive practices and regulations.”
My rejoinder: This is why big companies have big computer systems. I don’t doubt that there is some cost to gathering the information, but wouldn’t a company know the size of its payroll including pension and 401(k) contributions, health insurance and so on? In fact, some employers, I guess in an effort to show how wonderful they are, routinely tell employees that, for example, you receive $80,000 in salary and $125,000 in total compensation. Gathering this material wouldn’t be any more seriously burdensome than other SEC reporting requirements, say, disclosing lawsuits that might materially affect profits.
The calculation must account for volatile currency exchange rates.
My rejoinder: Yeah, so? Corporations report other items that are subject to currency exchange, why not this one?
The ratio is not comparable. Companies kvetch that a high-paid CEO at an enterprise with with lots of low-paid workers, like Walmart, would look bad compared to, maybe, Google, where the ratio between CEO pay and that of an average employee — who might be a software engineer might be lower. Supposedly, that would be unfair.
My rejoinder: True, but the ratio would allow investors to compare companies in the same industry. If Target and Walmart pay their average worker about the same amount, but one CEO’s pay is four times that of the other, well, that may tell you that management has more regard for itself and its own remuneration than shareholders, workers or customers.
The information would not be useful to investors.
My rejoinder: Hah! I think the ratio will become increasingly useful. Under Dodd-Frank, public companies are required to hold advisory votes on executive compensation at least once every three years. These “say on pay” votes are not binding, but this year, the first for such ballots, a dozen companies suffered significant protests, which means that 20 percent voted against the pay arrangements. (Most companies feel that a 30 percent against vote is tantamount to disapproval.) At Hewlett-Packard, only 49 percent voted in favor of a CEO pay package stuffed with upfront awards of cash and stock. Most important, a few companies — AT&T, Office Max and Walt Disney — took it upon themselves to modify (albeit slightly) pay to which shareholders objected. As time goes by and more say on pay votes take place, companies will be prodded, if only for improved public relations, to reduce CEOs’ outsize compensation.
It would be a shame if Congress repealed Section 953(b). Shareholders, employees and the general public have a right to know whose bread a corporation is buttering most.
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