The article in the url below discusses a part of the 2010 Dodd-Frank legislation that I had not heard of before—the “internal pay equity provision”:
“At issue is a rule that could force [firms] to disclose the gap between what they pay their CEO and their median pay for employees, a potentially embarrassing figure that many companies would like to keep private.”
Supporters of the clause:
“… a group that includes labor unions, institutional shareholders and left-leaning activists—say it would force companies to consider rank-and-file workers during boardroom discussions over CEO pay and could put the brakes on executive compensation, which has been rising faster than inflation and the average worker's pay.”
Firms, in response, suggest that such assessments would be challenging to calculate, making any published numbers misleading:
“Companies say they have a rough sense of their internal pay ratios, but they argue that their global workforces and varied payroll systems make calculating the median cumbersome, if not virtually impossible.”
This argument is difficult to accept when you look at the proactive, progressive stance firms like Whole Foods have adopted regarding firm-wide compensation. Similar to Ben & Jerry’s (Case-study: Ben & Jerry’s, p374), Whole Foods introduced a salary cap for all employees over a decade ago, limiting the highest earning employee to be paid no more than 19 times the lowest-paid employee:
“That means the typical full-time worker earned about $38,000 last year, and no one earned more than $721,000.”
Although, even here, the policy carries an important qualification:
“… the cap doesn't factor in stock options or pension benefits, which would be required under the proposed rule, and it considers average, rather than median, salaries.”
While the majority of U.S.-listed firms might shirk from such transparency, the dangers of rejecting progressive ideas are outlined as part of ‘A Rational Argument for CSR’ (Chapter, 1, p16). They are illustrated in this case by the threat of legislation in Europe:
“European Union officials are debating letting bank shareholders limit the pay ratios between the highest- and lowest-paid employees.”
The result of the absence of any limits is that, overall, CEO pay is spiraling out of control:
“Total direct compensation for 248 CEOs at public companies rose 2.8% last year, to a median of $10.3 million, according to an analysis by The Wall Street Journal and Hay Group. A separate AFL-CIO analysis of CEO pay across a broad sample of S&P 500 firms showed the average CEO earned 380 times more than the typical U.S. worker. In 1980, that multiple was 42.”
Meanwhile, the SEC continues to struggle in its attempt to write the rules that will enact the Dodd-Frank legislation. More than two years after its passage, most of its meaningful (read, controversial) provisions are yet to be implemented.
Take care
David
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
Firms Resist New Pay-Equity Rules
By Leslie Kwoh
June 27, 2012
The Wall Street Journal
Late Edition – Final
B8
