Corporate lobbyists have been hyperventilating ever since an amendment requiring firms to report their CEO-worker pay ratio slipped into the Dodd-Frank legislation. It was a major goof on the lobbyists' part. And in the three years hence they've been working furiously to delay, gut, or repeal the regulation.
Until recently, it looked like they were succeeding. Then the Securities and Exchange Commission, under the new leadership of Mary Jo White, finally got in gear. On September 18, they issued a strong proposal that puts the new rule on track for implementation in 2015.
But with a couple of weeks left for public comments on the proposal, opponents will likely go into overdrive. One of the heavies -- the National Investor Relations Institute -- has already weighed in. NIRI boasts member firms with a combined value of more than $9 trillion. And yet with all their might, they weren't able to come up with arguments that pass the laugh test.
First, let's keep in mind just how little is being asked here. All these corporations would have to do to meet the new disclosure requirement is calculate what they pay their median worker. CEO pay figures are already part of SEC disclosure requirements. And yet from the intensity of the pushback you'd think they were being asked to calculate the number of isotopes in the CEO's desk.
Here are NIRI's major claims (slightly paraphrased):
#1: If we have to report what we pay our workers, poor people will suffer.
NIRI warns that corporations facing public "pressure to maintain a low pay ratio" might stop expanding operations to low-wage regions, a move that would have a harmful impact on "U.S. states and cities with lower labor costs."
Yes, they want us to believe that poor people in Detroit or Appalachia may lose job opportunities because big corporations will be so concerned about widening their CEO-worker pay ratio.
#2: If we have to report what we pay our workers, investors will get confused.
NIRI says shareholders will be befuddled by the pay ratio because it will be used to "subject companies to unfair comparisons with peer firms with different business structures and compensation programs." They don't mention that under the proposed SEC rule companies concerned about oversimplification would be perfectly free to release any additional information they'd like.
They also complain that the flexibility in the regulation allowing corporations to use statistical sampling instead of counting every last paycheck will be too much for investors' noodles to handle.
They're right to be worried about shareholder confusion. "Why the heck is the guy in the corner office doing," investors might rightly ask, "that would make him 500 times more valuable than a shop floor employee?"
#3: If we have to report what we pay our workers, we'll go broke.
OK, maybe they didn't go quite that far. But the main argument of NIRI and all the other opponents of the new regulation is that it would cost too much to calculate median worker pay. To make it cheaper, they should be able to exclude employees outside the United States and just go with industry averages instead of having to reveal their own workers' pay.
Yeah, cuz in 2013, computers can trade derivatives in nanoseconds, recognize faces, and show you satellite pictures of your backyard -- but they can't compute the median from payroll data.
Let's be real. The fears about the CEO-worker pay ratio have nothing to do with poverty or shareholder confusion or high calculation costs. The real worry is that this measurement could become a powerful indicator of company health. Are leaders investing in human resources and building the teamwork that will keep the company successful well into the future? Or are they focused on lining their own pockets in the short term? This ratio will be an important clue.