In the US, public registrants are required to report the compensation of the top 5 executives of the company including that of the CEO. Under the recently SEC approved rules, most public companies are now required to disclose the ratio of the CEO’s pay to that of the average employee. The SEC rule does not limit how much a CEO gets paid — a company must simply disclose the pay ratio in its SEC filings. For instance, the CEO of GE made $37.3 million last year. The SEC now wants investors to know how much larger is the pay of GE’s CEO relative to its rank-and-file (average) employee?
Rule Details: When calculating the median employee compensation, the SEC rule allows companies to choose statistical sampling methods over actual survey. Companies can also exclude up to 5% of their employees not based in the United States. The rule lets companies make a cost-of-living adjustment, which would most likely increase the median employee pay. The rule would not apply to “emerging growth” companies defined as those with less than $1 billion in annual gross revenue.
Expected Pay Ratio: What is the CEO-Median-Worker-Pay-Ratio? According to information posted on SEC’s website, median compensation for S&P 500 CEOs is $10.6 million. In contrast, the average annual salary for U.S. employees was $47,230 in 2014, according to the Labor Department. Using these numbers, the average pay ratio (not exactly measured according to SEC rule) is about 224. According to Economic Policy Institute, 50 years ago, CEOs were paid roughly 20 times as much as their employees, compared with nearly 300 times in 2013.
Outcome of the Rule: What will be the outcome of this disclosure? The expectation is that public outcry over excessively high pay ratio might lead to reductions in CEO pay. But how does this help the median/average employee? Wouldn’t it be better for the employees if we the rank-and-file employee starts making more money as a result of this “pay ratio” disclosure!
http://www.nytimes.com/2015/08/06/business/dealbook/sec-approves-rule-on-ceo-pay-ratio.html?_r=0
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