Thursday, August 06, 2015
The SEC has adopted a rule that forces companies to disclose the ratio of the CEO's pay to that of the median employee. Get ready for spin. Some companies will pursue pretzel logic to reduce the ratio. Others will state what it is and do little more unless there is shareholder activism. In fairness to CEOs, it is difficult to know what a median employee's pay is in an international company with facilities in low-wage countries as well as high-pay locations. The rule apparently allows a snapshot of worker pay in a three-month window before the end of a year. You can be sure CEOs will game the system as much as possible to their advantage. Spin will enter the equation once ratios have been published. In the face of questions whether the CEO is worth that much more than the median employee, there will be plenty of justification. Much of this will happen outside of the purview of corporate communications and will lodge with corporate counsel, investor relations and HR. Look for tortured rationales beginning in 2017.