The SEC has issued a rule that forces companies to reveal how much their CEOs make compared to their employees. That’ll be fun to see, writes Daniel Gross, but it won’t change anything.
From The Daily Beast:
On Wednesday, the Securities and Exchange Commission announced a new rule that had long been sought by labor activists, do-gooders, and progressives. Publicly traded companies are already required to disclose, in exquisite detail, the compensation of their CEOs and other top executives in annual reports and proxy statements. Now, however, they’ll be forced to disclose more information about the compensation of rank-and-file employees—and then express the relationship between the two as a mathematical ratio. The rule, “required under the Dodd-Frank Act” and passed by a partisan 3-2 majority, “would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.”
The insane, obscene, yawning difference between the pay of workers and bosses has long been used as a cudgel by labor groups. Shareholder activists have proposed initiatives at companies such as Walmart (where the ratio is 1,034:1) to force them to disclose the ratio. Bloomberg did its own calculation this spring, and determined the ratio at companies in the Standard & Poor’s 500 is about 240:1.
The theory behind this seems to be that CEOs will have a sense of shame, or self-consciousness, about the disclosures, that the sunlight shining on the complicated web of executive compensation will force CEOs to either cut their own pay or raise the pay of employees. That somehow forcing companies to publish a benchmark will yoke public pressure and competitive instincts to bring the ratio down, thus reducing inequality, boosting the consumption power of workers, and putting a dent in global emissions to boot.
As a journalist, and an advocate of higher wages, I’m generally in favor of this. It’ll be great fun. It’s a great rhetorical gesture, like when President Obama calls for an increase in the minimum wage or rails half-heartedly against fat cats. But it won’t do much good or change anything. In fact, it seems like the rule’s boosters really misunderstand CEO and one percent psychology.
Everybody knows that CEOs make way more than workers. That’s the point of being a CEO.
They’re not ashamed. Everybody knows that CEOs make way more than workers. That’s the point of being a CEO. And in general, they simply don’t care. If they did care about the disparities between top earners and their workers, they’d do something about it—like raise wages. But they haven’t. Any way you look at it, corporate America has been very stingy. The Census Bureau reported this week that median household family income was $51,017 in 2012, down from 2011—and, adjusted for inflation, below what the typical household made in 1999. A McDonald’s employee earning $8.25 an hour would have to