The Securities and Exchange Commission recently proposed a potentially transformative new rule that would require publicly traded companies to compare chief executive compensation with median employee pay.
Though the rule was called for in 2010, when Congress passed the Dodd-Frank Consumer Protection and Wall Street Reform Act, corporate lobbyists succeeded in slowing it down until last month, when a divided SEC voted 5-3 for the rule and opened a 60-day comment period.
Corporations have argued that the rule would unduly burden them. And it probably would in that it could force their boards to rethink salary structures that reward the kind of reckless risk-taking that plunged the nation into the last recession. While executives got their paydays, the nation had to cover their bad bets with bailouts and endure a financial crisis that still lingers for too many workers.
The lobbyists did manage to block proposals to give shareholders a binding vote on executive compensation. So even if CEO pay packages turn out to be alarming, there's not much investors can do about it.
Several European nations are ahead of the United States in this regard. Sweden, Norway, Denmark, Switzerland, and the Netherlands all give shareholders a binding vote on executive pay. Pressure is mounting for Britain to follow suit.
While American shareholders' input on the subject remains advisory, exorbitant executive compensation and pay disparity are growing concerns here, with good reason.
The gap between rank-and-file and executive compensation has widened steadily for decades. In 1965, executives were paid an average of 20 times workers' salaries. Today, according to the Economic Policy Institute, they make more than 277 times their employees' pay.
Although the average pay of the nation's top 200 executives is $15 million, according to an analysis by the firm Equilar, they have not performed at a very high level for many firms. Between 1993 and 2012, more than a third of the companies run by the 25 highest-paid executives fired them for poor performance, had to be bailed out by taxpayers, or were charged with fraud, according to the Institute for Policy Studies' report "Executive Excess 2013: Bailed Out, Booted, and Busted. The study concluded that lavish compensation "encourages high-risk behavior and lawbreaking at the expense of taxpayers and investors."
The rule to require disclosure of pay ratios could also open workers' eyes. Once they find out just how much more their bosses are making, they might be empowered to demand raises. If a company's median pay is $50,000, and executive pay is 300 times that at $15 million, for example, you can expect the average employee to be a bit agitated.
The Center on Executive Compensation, which marshaled lobbyists to fight the new rule, says it will now urge Congress to repeal it. But it's hard to imagine that cause getting much support from Americans outside the corner office.
-- Philadelphia Inquirer