Economy | Business

Proposed Rule Would Make Companies Disclose CEO-To-Worker Pay Ratio

NPR | Sept. 18, 2013 12:58 p.m.

Contributed By:

Scott Neuman

Chairman and CEO of Berkshire Hathaway Warren Buffett bucks the trend on executive pay, with a salary only 11 times what the company's average worker makes.

Chairman and CEO of Berkshire Hathaway Warren Buffett bucks the trend on executive pay, with a salary only 11 times what the company's average worker makes.

Getty Images, Kevork Djansezian

U.S. corporations would be required to disclose the ratio of their CEO’s pay to that of average workers as part of an oversight plan being voted on Wednesday by the Securities and Exchange Commission.

Bloomberg News reports the proposed rule change is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Sen. Robert Menendez (D-N.J.), who wrote the CEO pay ratio provision, said it was aimed at ensuring “that investors know whether a company’s pay practices are ‘fair’ and whether ‘executives are sharing proportionately in any sacrifices.’ Other proponents of the rule, including unions, say a lopsided ratio would help investors detect whether a company may have morale problems among its workforce that can affect productivity and earnings.”

Last year, CEOs earned 202.3 times more than typical workers, according to the Economic Policy Institute. That figure, the EPI says, is “far higher than it was in the 1960s, 1970s, 1980s, or 1990s.” A separate study by the AFL-CIO, citing only the largest U.S. corporations, cited a ratio of 354-to-1, which it said was the widest gap in the world.

CNN reported last year that Apple CEO Tim Cook’s salary was more than 6,000 times the average worker, while Berkshire Hathaway’s Warren Buffett made just 11 times the company’s average pay.

Reuters says the provision has been “vehemently opposed” by “companies and business organizations such as the U.S. Chamber of Commerce, as well as, the Center on Executive Compensation.” They complain the rule would be too costly and difficult to implement and would not be useful for investors.

The SEC says it would require companies to include compensation data for all of its workers, including those employed overseas or by its subsidiaries.”

“However, the SEC also said it would give companies more flexibility in how they calculate the median. They could, for instance, use a statistical sample.”

Reuters says the CEO pay-ratio regulation is one of two proposed rules that have yet to be implemented from Dodd-Frank. The SEC on Wednesday is also expected to adopt a reform to allow it to oversee financial advisers to municipal entities that sell public debt or manage public money.

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