Have you ever wondered just how big the Coca-Cola CEO’s pay is compared to the typical employee’s salary at the soft drink company?
Or perhaps how many orange-aproned employees’ paychecks could be covered by the Home Depot CEO’s pay?
That information may become available pretty soon under new federal regulations — unless companies succeed in blocking it.
Under a relatively little-known section of the new Dodd-Frank financial overhaul law, companies will be required to calculate how their CEOs’ compensation compares to the median pay of their global work forces, including part-time clerks in Peoria and assembly workers in Guangzhou. The median is the pay level at which half the employees are better paid and half are paid less.
Proponents hope the new disclosure, if it’s put into effect, will pressure boards of directors to pay more attention to their companies’ internal pay levels when setting CEO compensation.
Most companies now set their CEOs’ compensation in comparison with peers at similar companies, arguing that they need to compete for top talent.
“What that does is encourage a race to the top, where all CEOs think they’re above average,” said Brandon Rees, deputy director of the AFL-CIO’s Office of Investment.
As a result, typical CEO pay at the nation’s largest companies has inflated to $11.4 million, 343 times larger than workers’ median pay, according to the union group. In 1980, CEO pay was 42 times higher than the average blue-collar worker’s pay, the union group said.
“We believe this disclosure will help lower CEO pay,” said Rees.
But companies are fighting back.
Opponents argue that the ratio would be too laborious to calculate and wouldn’t be useful information for investors.
“We’re still scratching our heads on how this ended up in law,” said Tim Bartl, senior vice president of the Center on Executive Compensation, an industry group for large corporations.
Proposed legislation to repeal the rule — the Burdensome Data Collection Relief Act — recently passed a key subcommittee vote in the Republican-controlled House.
Meanwhile, the Dodd-Frank Act’s co-author, U.S. Rep. Barney Frank, D-Mass., said he is considering ways to lessen the rule’s burden.
But Bartl said his group would oppose the rule, even if it required a simpler calculation, such as comparing employees’ average pay level to the CEO’s pay.
“Regardless of how you slice it, the information isn’t going to be used by investors,” he said. “We wouldn’t view it as useful.”
About the Author
