May 25, 2018; New York Times
“This year, publicly traded corporations in the United States had to begin revealing their pay ratios—comparisons between the pay of their chief executive and the median compensation of other employees at the company,” notes David Gelles in the New York Times. The reason has to do with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
You may recall that Dodd-Frank was passed in 2010. This means that eight years transpired from when Congress passed the law to when companies had to comply. Why did it take so long? It’s not because of mathematical complexity; back in 2013, Jerry Markon and Dina El-Boghdady in the Washington Post reported that the SEC considered it “one of the simpler parts of a mammoth and complicated law.” In fact, “within six months of the law’s passage in 2010, SEC staffers had circulated an early blueprint for the pay rule.”
What the agency did not count on was the resistance mounted by big business. A lobbying campaign waged by business executives and the nation’s most prominent corporate associations undercut the momentum and effectively brought the agency’s work on the rule to a standstill, according to interviews with SEC insiders and others familiar with discussions about the requirement.
A Walmart employee earning the company’s median salary of $19,177 would have to work for more than a thousand years to earn the $22.2 million that Doug McMillon, the company’s chief executive, was awarded in 2017.
At Live Nation Entertainment, the concert and ticketing company, an employee earning the median pay of $24,406 would need to work for 2,893 years to earn the $70.6 million that its chief executive, Michael Rapino, made last year.
And at Time Warner, where the median compensation is a relatively handsome $75,217, an employee earning that much would still need to work for 651 years to earn the $49 million that Jeffrey Bewkes, the chief executive, earned in just 12 months.
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Michael Rapino’s $70.6 million works out to $193,424 a day, by the way, assuming he works all holidays and weekends. Rapino, however, falls short of Broadcom’s Hock Tan and First Data’s Frank Bisignano, each of whom cleared $100 million last year. Gelles adds that, “Financiers at hedge funds, which are generally private…can earn billions of dollars a year. Michael Platt, the founder of BlueCrest Capital Management, earned $2 billion last year, according to Forbes. James Simons, a founder of Renaissance Technologies, earned $1.8 billion.”
Last fall, Bloomberg Law, in an article that labels the rule a “pain in the butt,” quoted Sharon Podstupka of Pearl Meyer & Partners, who says, “Companies seem frustrated about this particular exercise. This disclosure, from an investor and proxy adviser standpoint, is relatively meaningless.”
Podstupka’s comment is telling, as if the only reason to have disclosures is to inform investors, not the general public. Of course, rising CEO pay is no mere matter of corporate efficiency. Recently, the US Supreme Court in Epic Systems Corp. v. Lewis upheld mandatory arbitration clauses in contracts. As the New York Times editorial board explains, “The use of mandatory arbitration clauses by nonunionized companies has skyrocketed, from two percent in 1992 to 54 percent today….Why would so many companies go this route? Hint: It’s not because they want their employees to have more bargaining power.”
“It’s grotesque how unequal this has become,” says Louis Hyman, a business historian at Cornell University. “For CEOs, it’s like they are winning the lottery year after year. For a lot of Americans, they don’t have any savings. When they lose their job, they lose everything.”
Gelles notes that, “As glaring as the ratios may seem, they tell an incomplete story. Some companies reported very low ratios and relatively high median incomes, but rely on outsourced labor for important tasks. Other companies that reported very high ratios employ many workers overseas where pay is far lower than in the United States.”
Hyman, who has written a book on gig workers slated to be published in August, says, “It all depends on who you consider to be an employee in this new economy.”
Some say the rule might help nudge more equitable pay. “This could have beneficial results about how companies communicate with their employees,” says Jannice Koors, an executive compensation consultant. “In a good year, if the CEO’s pay goes up, does the median employee’s pay go up, too? Does the company have profit-sharing that goes deep enough?”
At present though, as Jennifer Gordon, a law professor at Fordham University, observes, “The top layer of management lives like kings and queens while the people at the bottom are scrabbling for a decent existence.”—Steve Dubb