Monday, April 13, 2015
The Federal Government and corporate CEOs are in a stand-off over pay transparency -- i.e. the use of a ratio to determine how much more a CEO is paid than the median income of employees. The government wants to highlight how much more CEOs earn than workers. Its reasoning is that inequity in pay will regulate itself eventually for CEOs whose compensation packages are too rich. Unfortunately, there is no easy way to measure a CEO's annual compensation, especially when much of it is incentive pay with multi-year vesting. Proxy numbers mix together short- and long-term CEO pay. Further, it is hard to determine the median income of employees, especially when a company has international operations where pay scales might be much lower than domestic earnings. So while the PR intentions of the government are noble, they are flawed, and in need of revision. However, that won't happen unless companies show a willingness to work with the government to determine how best to develop a pay ratio. That won't happen soon, if ever.