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You are here News Congress US CEO to employee pay ratio is 300+ to 1. Should the public know?

US CEO to employee pay ratio is 300+ to 1. Should the public know?

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CEo payThe immediate issue is a provision of the Dodd-Frank Act, the corporate and Wall Street regulatory overhaul act passed last year to address some of the financial abuses uncovered in the wake of the 2008 crash.

In the year since its passage, Dodd-Frank has become a favorite target of business leaders and conservative lawmakers who blame it for creating "uncertainty" in corporate boardrooms, and therefore hampering job creation.

One of the fiercest attacks involves a little-noticed provision requiring that companies disclose the ratio between the average pay of all employees and that of the CEO. This ratio, as it happens, all but defines the pathology of income inequality in the United States; over the last 30 years, according to figures from the Bureau of Labor Statistics and elsewhere cited by its author, Sen. Robert Menendez (D-N.J.), it has ballooned from 42-to-1 to more than 300-to-1. In the same period, according to data compiled by economist Emmanuel Saez of UC Berkeley, the richest 10% of U.S. income earners captured 98% of all income growth, and the bottom nine-tenths got 2%.

The disclosure provision plainly has gotten under Big Business' skin. Although Dodd-Frank includes rules requiring that shareholders get a vote on executive pay and for a "clawback" of pay based on inaccurate financial statements, "there has been a more substantial amount of commentary on the pay ratio than any other provision relating to executive compensation," Paul Hodgson, a senior researcher at the shareholder research firm GMI, told me.

A bill to repeal the pay ratio provision has been passed by a House committee, and even if it fails to become law, the Securities and Exchange Commission will face enormous pressure to go easy when it issues rules implementing the provision later this year.

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