Despite law, companies still not required to compare CEO-to-worker pay [San Jose Mercury News :: ]
(San Jose Mercury News (CA) Via Acquire Media NewsEdge) July 19--Four years after a federal law required public companies to disclose the pay gap between their CEOs and other workers, government regulators are still mulling how to put the measure into effect, with proponents saying it's crucial to help halt excessive compensation and critics calling it costly and ill-conceived.
The delay, which consumer advocates have attributed to opposition by business groups, prompted 13 U.S. senators -- including California Democrat Barbara Boxer -- to write the U.S. Securities and Exchange Commission in November, urging it to quickly approve a rule to implement the law.
"Over the last 20 years, incomes for the top 1 percent of earners have grown by more than 86 percent, while incomes for the other 99 percent have grown by less than 7 percent," they declared. "Investors need to know to what extent skyrocketing disparities between CEO and worker pay are justified."
Companies were required to publish the ratio of their CEO's pay to the median pay of their employees as one of many provisions in the 2010 Dodd--Frank Wall Street Reform and Consumer Protection Act, which aimed to bring greater accountability and transparency to the economy. But it took three years before the SEC proposed a rule spelling out how companies should follow the law. Although the agency previously has indicated it might formally adopt the rule in October -- paving the way for it to go into effect in 2016 -- the SEC's spokeswoman, Judith Burns, declined comment on whether that timetable is realistic.
CEOs at top U.S. firms on average make nearly 296 times more than their typical employee, a dramatic increase from 1965 when they were making 20 times as much, according to a study by the Economic Policy Institute, a nonpartisan Washington think tank.
No comparable pay data is available for Bay Area companies. However, the median pay of CEOs at the top 100 local companies increased from $3,395,611 in 2007 to $8,174,592 in 2013, though a few higher-paying firms were added to the sample in 2011, according to the Equilar Silicon Valley CEO Pay Study, conducted for the Bay Area News Group. The best-paid local CEO -- Larry Ellison of Redwood City tech giant Oracle -- received $78.4 million in total compensation last year. Oracle declined comment on the proposed regulation and its CEO-to-worker pay ratio.
Lawrence Mishel, the institute's president, said CEO pay is particularly troubling because many bosses are handsomely rewarded despite doing little to make their companies more productive. In other words, he said, "they haven't expanded the pie, they're just getting a bigger piece of the pie," leaving less money for their employees.
Former Labor Secretary Robert Reich, now a professor of public policy at UC Berkeley, agreed.
"The average household is poorer today than it was in the year 2000, adjusted for inflation, so you have a problem," he said. "If the middle class and poor don't have enough purchasing power, they can't keep the economy growing." Moreover, he said, if companies spend exorbitant sums on their CEOs, they have less money for research and development or investor dividends.
In a letter to the SEC, Georgetown University associate finance professor James Angel called the rule "a clumsy yardstick for judging executive compensation" and "of limited usefulness to investors or activists."
He said one CEO might be deemed overpaid simply because they have a lot of low-wage manufacturing employees, while another might look comparatively underpaid because they've off-shored all their manufacturing to a foreign sweatshop. Moreover, he said, it's unnecessary to make companies compute their worker's pay, since the government already publishes worker-pay data for many industries.
Another criticism is that calculating the CEO-to-worker pay ratio could cost some companies millions of dollars a year.
But in its comments to the SEC, Santa Clara chipmaker Intel, which has about 105,000 employees, estimated that "our compliance costs will run approximately $15,000 annually." And in a letter to the agency, San Jose State University professor emeritus Eloise Hamann and her husband argued that the pay rule was important, adding that they are heavily invested in public companies.
"We absolutely do not want to be part of the problem by supporting companies with lopsided CEO-to-worker pay ratios which can harm morale and productivity among a company's workforce," they said. "This disclosure will help large funds allocate resources to the companies that re-invest in their workers."
Apart from the SEC's deliberations, state Sen. Mark DeSaulnier, D-Concord, and Sen. Loni Hancock, D-Berkeley, introduced a bill this year to boost taxes on corporations with wide CEO-to-worker pay disparities. Although that measure failed to pass a key vote in May, "this is far too important to let it die on its first attempt," DeSaulnier said, adding that he's considering amending the bill. "We cannot have a true economic recovery when CEOs are lavished with bonuses at the expense of workers."
Contact Steve Johnson at email@example.com or 408-920-5043. Follow him at Twitter.com/steveatmercnews
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