There is one good thing to be said for Michigan Representative Bill Huizenga’s bill to spare U.S. companies from disclosing how their CEO pay compares with their median-employee pay. It reminds us that companies were supposed to be doing that.
Crazed compensation tied to short-term profits and stock gains had a lot to do with the cycle of reckless lending, opaque securitizing and systematic offloading of responsibility that gave us the financial meltdown of 2008. In one modest response, the Dodd-Frank Act requires companies to reveal more about their pay practices.
Investors need to know more, both to guard their own pocketbooks against risky bets by self-seeking executives and to evaluate a company’s long-term soundness in light of evidence – backed by common sense – that runaway pay at the top breeds cynicism and opportunism up and down the line. (The law also calls for nonbinding “say on pay” votes by shareholders, and bars compensation arrangements that would reward bankers for excessive risk-taking.)
But it has been easy to forget the pay-disclosure provision, because the Securities and Exchange Commission, charged with writing rules to implement it, has yet to act three years later. That failure, in turn, can probably be attributed to the hue and cry of CEOs and corporate spokespeople.
Not that they have anything to hide, they assure us; their stated concern is with the enormous difficulty, to quote one financial-lobby policy brief, of sorting through “the data from many countries and multiple payroll systems” and adjusting for “account currency fluctuations and the laws of each country with respect to benefits and even confidentiality of employees’ compensation information” – you know, that sort of thing.
Last week, the House Financial Services Committee heard testimony on Huizenga’s bill – the duly named “Burdensome Data Collection Relief Act” – as part of a hearing on “Legislative Proposals to Relieve the Red Tape Burden on Investors and Job Creators.” The committee is expected to approve the measure and forward it to the full chamber in a matter of weeks.
Inconveniently for Huizenga and his proposal, however, it comes at a time of surging executive pay, which stands in “startling contrast” to the state of the overall economy, as USA Today noted recently. CEO compensation at a sample of S&P 500 companies grew by 8 percent between 2011 and 2012, swelling the typical package to nearly $10 million a year. And though we still don’t have the company-specific numbers mandated by the law, the top-to-median ratio has plainly been rising for decades. S&P 500 CEOs, on average, made 354 times as much as rank-and-file workers last year, according to an AFL-CIO analysis of corporate filings and Bureau of Labor Statistics data. In 1982, the multiple was 42 to 1.
We know more about corporate compensation and more about the process of calculating it thanks to Bloomberg News, which decided to do its own company-by-company tally last month, using publicly available executive pay figures and the BLS’s industry-by-industry median pay figures. This exercise produced a CEO-to-typical-worker multiple of 204-to-1 for the 250 biggest companies in the S&P 500, and 495 to 1 for the companies with the 100 highest-paid executives.
But the corporate reaction was every bit as revealing as the data. As a pre-publication courtesy, Bloomberg invited each company to respond, which a number of them turned out to be eager to do. For example, the Ohio-based Fifth Third Bancorp, with 21,000 employees, wasted no time in informing Bloomberg that CEO Kevin Kabat’s pay, including every possible dollar and perk, was only 176 times, not 186 times, that of the company’s median worker.
So it turns out not to be such a daunting task for banks and other companies to come up with figures for CEO and median-employee pay. (Fifth Third’s press people, as Sam Pizzigati noted in his weekly inequality newsletter, had evidently failed to “read the memo” on the onerousness of the task.)
In recent decades, the pay of CEOs and top executives has shot up relative to just about every measure of business or national prosperity. Twenty years ago, roughly five percent of the profits of the biggest companies went into executive compensation; now it’s ten percent. While the companies with the most extreme ratios tend to be in retail or fast food, which depend on vast numbers of minimum-wage workers, the Bloomberg tally nevertheless showed financial firms with the highest overall ratio – above 300 to 1 – of any major industry.
Huizenga’s bill will likely pass in the House and be ignored in the Senate. Then again, enactment was not the point of this proposal. It is best understood as just another volley in the barrage of corporate efforts to intimidate the rule-makers at the SEC – efforts that, helped along by far too many members of Congress, appear to have had an effect.
“I’m shell-shocked,” Vanguard mutual fund founder John Bogle said in reaction to last year’s CEO pay gains. “I can’t believe this can go on. I can’t believe owners of these companies can’t take a bigger stand.”
Maybe they will if the SEC can finally manage to act on a requirement that still is and, let us hope, will remain the law of the land.
— Jim Lardner
(Originally published on USNews.com.)