Heard Off the Street: An earful of wisdom on CEO pay

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Congress' 2010 decision requiring public companies to disclose the ratio between the pay of their CEOs and the median worker's pay has sharply divided the American public. One need only consider the Securities and Exchange Commission's 3-2 vote on a plan for implementing the mandate to appreciate the magnitude of the discord.

The SEC's Sept. 18 decision opened the proposal to a 60-day public comment period. The agency is already receiving an earful of wisdom from the public.

First, a few words on the proposal.

Public companies would be given considerable flexibility to determine the median annual total compensation of their employees. (Median compensation means half of a company's workers make more and half make less.) CEO pay would be excluded from that calculation.

The SEC did not recommend a specific method for determining median worker pay, saying companies could select methods based on their size, structure and compensation policies. They could also use reasonable estimates in making the calculation.

Companies would have to disclose their methodology, including any assumptions or estimates they used. The median pay figure would include full- and part-time workers as well as temporary, seasonal and non-U.S. employees. They could annualize the pay of a permanent worker who did not work a full year, but could not do that for part-time, temporary or seasonal employees.

Comments submitted to the SEC so far mirror the arguments made in the three years since Congress approved the Dodd-Frank bill mandating the disclosure. Proponents say it will shine much needed light on the outrageous disparity between the pay of CEOs and the average worker. Opponents say it is a costly, time-consuming calculation that serves no useful purpose.

"There is no empirical evidence that CEO pay relative to median worker pay is an indicator of CEO effectiveness or, for that matter, a median worker's effectiveness," Karl Muth, a lecturer at Northwestern University, told the SEC.

Laurie Norton, president of a Durango, Colo., painting company, disagreed.

"The inequitable distribution of income in our country has reached obscene levels and seriously threatens our democracy," Ms. Norton wrote. "Not revealing the absurd ratios of CEO pay to that of average workers is equivalent to sweeping and leaving our dirt under the rug."

Several citizens warned the proposal will encourage class warfare.

"The disclosure of a ratio of this type will only anger people. If that is your goal, to divide people, then I believe that you will succeed," wrote Todd Liszka, an Erie, Pa., CPA.

A human resources specialist wrote that "it's hard enough trying to maintain a positive company culture without publicly comparing CEO pay to the rest of the employees."

"If you already have a disgruntled culture, this will not only add fuel to the fire as well as heap additional federal paperwork on the [human resources] department," wrote Robin Labenz of EBM Construction in Norfolk, Neb.

Several commenters are not buying the gripes that the math will take too long and cost too much.

"We always heard that the capitalist system would be brought to its knees if listed companies have to provide additional information, but somehow the dreaded consequences never materialize," wrote Sue Ravenscroft, an Iowa State University accounting professor.

She noted that accounting for the stock options that companies heap on their executives gets pretty complicated, "but somehow corporations are able to figure that out."

Eric Gade of Arlington, Va., wrote that since "productivity is at an all-time high and companies in general are doing quite well, I find it hard to believe that it would be devastating to allocate one or two people to calculate this ratio."

Linda Pierce of Mason, Mich., rues the proposal "as another example of government intrusion into the free market system that has made our nation an economic powerhouse in the history of nations."

"I strongly object to this government intimidation tactic. What companies choose to pay their CEOs is none of your business," she wrote.

But for Carol Kuniholm, the proposal embodies the American way of life. The Exton, Pa., woman urged the SEC to approve the measure.

"We are looking for heroes in the ongoing story about the survival of democracy," she wrote. "Here's your chance. Please don't disappoint us."

None of the comments submitted so far represent the official opinion of the vast number of organizations that have a vested interest in the proposal, but there's still plenty of time for them to weigh in.

Once the comment period closes, the SEC will consider the suggestions and vote on a final proposal. If that goes into effect next year, companies would have to disclose the ratio for the first time in 2016, based on 2015 pay figures.

Interested in contributing your two cents? Go to www.sec.gov and click on the link for "Requests for Public Comment." If you email or snail-mail your views, be sure to indicate you are commenting on File Number S7-07-13. You can also submit them on a form provided at the SEC website.


Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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