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Why Can't We Fix Outrageous CEO Pay?

CEOs should be forced to reveal how pay stacks up against the average worker. But not on the SEC's watch.
 
 
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In theory, a new proposal from the Securities and Exchange Commission would require CEOs to disclose not only how much they make, but how that sum compares to the average worker. In practice, however, don't hold your breath. 

A total lack of clear methodology in how exactly companies are meant to calculate this figure gives corporations a blank check to come up with any figure they want. What turned a measure meant to increase transparency and accountability into yet one more way for corporations to obscure truth and cast illusions? A deep and abiding concern on the part of the SEC that following this rule not be too expensive for multibillion dollar corporations. Why are we not surprised? 

While, yes, the CEO definitely makes more than you, the question of just how much more is set to become a matter of public record. Three years ago, the Securities and Exchange Commission (SEC) was charged with drafting a rule that, as part of the Dodd-Frank Act, would require public companies to disclose the total annual compensation of their CEO, the median total annual compensation of the remaining employees, and the ratio between the two. This is, presumably, to increase financial transparency and highlight the growth of an already hideous inequality between well-heeled executives and the average worker, without whom no wealth would be generated at all. Sounds good, right?

On Sept. 18, the SEC released its draft proposal on how exactly companies would go about disclosing this and the result is a vague, toothless, broad-as-the-universe mess than is so ineffective and counter to the legislation’s original intention that it’s insulting. Given the task of creating a rule to increase transparency and highlight inequality, the SEC has instead given us a regulation-in-name-only proposal that doesn’t so much have loopholes but is instead composed almost entirely of them. What, exactly, is wrong? Let SEC Chair Mary Jo White, in her statement about the proposal, lay it out for you:

“The rules proposed would not require a specific methodology, but instead would provide a company with the flexibility to determine the median and calculate the annual total compensation for that employee in a way that best suits its particular circumstances.”

Note that, for her, this is a good thing.

What is the SEC offering instead? According to the proposal text, “we are providing instructions and guidance designed to allow registrants to choose from several alternative methods to identify the median, so that they may use the method that works best for their own facts and circumstances.”

So, for example, a company might use payroll figures to determine their ratio, or they could base it on a random sampling of employees, or they might use tax records, or they might do something entirely different depending on what outcome the company wants to produce. They could even, according to the proposal text, “exclude employees in the sample that have extremely low or extremely high pay because they would… not be the median employee.” Good news for companies that use a lot of minimum wage workers.

The proposal is similarly vague on what, exactly, they mean by compensation. Is it cash only? Does it include benefits? Do stock options count? Who knows? According to the SEC, it is believed that it’s best if the companies themselves decided what does and does not count as compensation, which the proposal said “would result in a reasonable estimate of a median employee at a substantially reduced cost.”

This concern for protecting companies from what they would see as a burdensome compliance cost pops up all over the proposal. The SEC is, apparently, very concerned about making things easier for the companies affected. Here are just a few quotes to that effect within the proposal: