SEC adopts rules mandating disclosure of CEO-worker pay ratios
reuters.com
reuters.com
My presumption is that CEOs are adding enough value to be worth their pay, just like every other worker (should be).
If this is the case, the only people that should be worried about it are the shareholders and the other people that own the company.
If I was running a company and I had more money to spare (because I couldn't pay the CEO past a certain amount of money), I'm not just going to pay a worker because it sounds nice. Workers should be paid based on market value and the value they bring to the company.
And the SEC is responsible for improving company/shareholder relationships, so this falls under their directorate.
http://www.epi.org/publication/ceo-pay-continues-to-rise/
And yes, you can easily counter saying that private companies are allowed to pay their CEOs whatever they want, which is absolutely true, but at the same time many people are growing concerned about a wealth gap in the US - that the rich are getting subtantially richer, while the middle class haven't seen meaningful gains in a long time. That absolutely has an impact on society as a whole.
The crucial thing here is the stagnation of the middle class. There is no way 1 CEO can produce the output of 300 employees. Is it socialist to expect that the people who actually make the stuff to share in the gains? Or maybe that's communist.
However a poor CEO can easily waste more money than 300 salaries just by choosing the wrong product direction, or keeping a strategy going long after its not beneficial.
So perhaps pay is so high just to find a CEO whom isn't a bad hire.
There's some theories that posit that high CEO pay isn't to reward the CEO for their work directly but to motivate everyone under the CEO to work their ass off in hopes of one day becoming the CEO. Motivating the workforce in this manner makes the company sufficiently more productive as to make it worth paying those high salaries; even if the CEO doesn't actually produce anything themselves. I believe it's called a tournament-style system or something.
It's pretty bleak-sounding.
Why is that for you to decide? The world has become globally competitive since the 1960s, which means it takes a lot more work for a CEO to run a company successfully.
"but at the same time many people are growing concerned about a wealth gap in the US - that the rich are getting subtantially richer, while the middle class haven't seen meaningful gains in a long time. That absolutely has an impact on society as a whole."
This will continue to happen when we put more and more restrictions on owning and starting a business, which is ironic, because this is what many of the politicians that claim to be helping the middle class, are proposing.
It's for society to decide. I know the libertarian perspective is that society/government have no role in deciding how businesses operate, but that isn't actually the reality today. You might just as well ask what gives anyone the right to make companies pay tax.
This will continue to happen when we put more and more restrictions on owning and starting a business
I'm curious as to why you think economic prosperity can only be reached by starting your own business. What's the ideal end game here - every citizen of the US operates their own one-person business?
If that's the case, then I should decide how my tax money is used, no? If we had universal healthcare, would I get to decide what you do with your body, since I, as a tax payer, would be paying for your risky behavior?
"I'm curious as to why you think economic prosperity can only be reached by starting your own business."
How do you propose economic prosperity if not through a business?
A job? Who pays the wages of the workers?? That's right, a business
The government? Where does the government get the money to pay someone? Taxes. Citizens pay taxes, but they get it through either 1) working for a business or 2) starting a business.
An alternative is that the government essentially runs all businesses, but a centrally planned government monopoly is not very efficient and certainly isn't associated with prosperity.
"What's the ideal end game here - every citizen of the US operates their own one-person business?"
No. But if we change the economic climate which makes it very difficult to start a company, the only things that will be left will be big business and government monopolies.
- Don't the employees also do more work, and spend more money on their own training (college, vocational education, conferences) to remain competitive employees?
- Supply side economics really works! Make the stuff, and people will buy it with the extra money they get from... not sure.
I think this is a good idea for shareholders and as a shareholder I support it. Why would giving shareholders more insight into such a major expense (compensation) be a bad idea? I'd want to know if a company I was a shareholder in was over/underpaying its CEO, because there's some efficiencies to be gained there.
The position as a CEO is potentially adding value if managed properly, but many CEOs get insane salaries, bonuses and golden handshakes even when they perform poorly.
The actual groundwork that made most companies valuable were laid much earlier in the organizations life.
People aren't paid based on the value they create, strictly speaking. They're paid whatever is necessary to get them to work.
The value of a good executive is, I'd argue, far higher than their pay reflects. A truly bad executive can put a company on the path to ruin, and a decent executive making bad choices can do the same. What companies are paying for in good/great executives isn't some N times multiplier on that salary in new income, they're paying for reduced chances of catastrophe.
The supply of good/great executives is small, and the potential loss from putting a dunce in charge of AAPL/GOOG is obscene, so is it any wonder the price lands where it does?
The top 20% of earners pay over 80% of the income taxes. That's low?
That may be about right if you mean "the top 25% of people in terms of income subject to income tax" and "of the taxes" you mean "of income taxes", which aren't even the only tax on labor income (or even the most significant tax on labor income for a large proportion of the workforce.)
OTOH, the top 25% of income-subject-to-income-tax earners aren't even approximately what most people mean when they say "the rich", and the issues raised with the fairness of the tax system aren't limited to income tax, but to the structure of the tax system and what taxes things are subject to at all.
But to answer your question, I think income after $1m/yr should be taxed at close to 90% and that capital gains should also be considered part of that income. We can start there.
A better statistic is to actually look at the tax rate paid by the top earners compared to lower earners. Top marginal rates on employment income including state tax is often over 50%, which is probably plenty.
http://www.efile.com/tax/do-i-need-to-file-a-tax-return/#inc...
People are pissed that the wealthy, wielding their outsized political influence have pulled up the ladder of opportunity behind themselves.
> The top 20% of earners pay over 80% of the income taxes. That's low?
The wealthy aren't so because of earnings (wages subject to income and payroll taxes), so its not so much low or high as a non-sequitur.
Even better, the .001%, which starts at around 10.2mm/yr
Not that people making $150k couldn't afford to pay more taxes (I'm one of them), but the issue really isn't with the top 20%.
Even worse, the fact that capital gains aren't treated as income and the fact that we let parents pass billions on to their children (for no societal benefit) is a much larger problem.
Cute statistic though, spoken like a true facebook comment
Let's say you take $100M from each of them. That's $200B. The Federal budget is $3.8T. So you increased the budget by just 5%.
It seems that the desire to tax the rich is simply to bleed them down to a normal level, not because we really need their money.
I get that it's a desire to get back to 1950s level income equality, but that time seems to be an historical accident due to the US economy being the only one left standing after WW2. Sure, white guys in the United States were all earning at relative parity, but global poverty was far, far worse than it is today, women here weren't allowed to work, etc.
And are the rich getting richer while the poor get poorer? Doesn't seem so. Rockefeller's net worth was $400-$600 billion in today's dollars, while our current richest person, Bill Gates, is worth a paltry $80B. Globally, the poor are earning more than ever.
Correct me if I'm wrong, but when people talk about restoring income equality, at least in this country, they're unintentionally pining for the days when the United States middle class earned more, at the expense of the rest of the working world.
> Cute statistic though, spoken like a true facebook comment
Was this comment facebook-ey enough for you?
Your comments are typical drivel that go on top of a meme. You should consider applying to work in Fox News' statistic department
> Correct me if I'm wrong, but when people talk about restoring income equality, at least in this country, they're unintentionally pining for the days when the United States middle class earned more, at the expense of the rest of the working world.
You are wrong. I'm not talking about restoring anything back to the 1950s. I'm talking about real solutions to the problems we face today, like ensuring education is affordable and available to everyone. Ensuring that every citizen has the right to have access to our healthcare system. etc. etc.
It's not about having the middle class earn more, it's about the poor not being treated like complete shit in the US. The proper measure for a society is how we treat those who cannot provide for themselves. We're failing bigtime in America.
We actually agree on this.
I just think we can do it by modifying the way we spend and distribute what we already collect, not necessarily by collecting more.
Serfs are free to renegotiate their constitution, move, buy land from their king, or start their own kingdom.
Now all these options sound a little more silly... Because we accept the power structure of feudalism.
But many doubt there is any power structure in capitalism.
Landless wage labourers? Yes. Debt based economies? Yes. Taxes given as handouts to the owners? Yes.
The differences between the structure of two are far more subtle than most people like to believe.
We are at a point on political democracy, that's great - but economically we are still kinda stuck in the 1700s ... We could try to democratize that too.
Part of the problem is that neoliberalism suggests that everyone should act like an entrepreneur, a CEO if you will. This is actually as silly as implying that if everyone acted like a prince or princess in feudalism, it would have been a fair system.
But you point to the "self made man". Statistically speaking, those are about as rare as someone marrying into royalty in classical feudalism. Pointing to that fact of course, didn't make feudalism fair either.
There's a real, leaky (they all are), power structure imposed by the system that can't be undone by the power of magical thinking.
We need to hurry up and restore all the monarchies of the world because we are living on stolen property.
</sarcasm>
Property rights if you really want to go there is not a natural right but something that is guaranteed by the state.
However I may want to re-evaluate my future relationships with a company who is not very careful with their large investments.
As for the rules, it seems to be somewhere between class-warfare and fairness. Not sure we really need to know, but it might be useful information for some investors. It doesn't affect me so I have a hard time forming a strong opinion on this.
There is no downside to increasing CEO compensation for these boards.
Or paying dividends/buybacks to shareholders? This isn't just an issue for the "99%"
If we go with the lowest paid employee is making 30k a year, and the CEO is making 3mil? Is that too much, not enough, just right?
There isn't a right answer and it entirely depends on the purpose of the company and the model, but I do think it's an interesting way to keep a reality check on inequality voluntarily inside a company.
It also isn't factoring the problems that would arise if your max ratio prevents you from being competitive in the CEO hiring market.
No. Not if you want to live in a peaceful society, but we're talking religions again... You are correct, there is no right answer. Views vary based on how much 'socialist' or 'liberal' someone is.
Because this was unclear to me initially, this DOES factor in complete CEO compensation (not just salary).
The interesting part is companies will now be required to disclose the mean salary of it's general employees (C-level salaries are already disclosed), it would be interesting to see Google, or any qualifying tech business, give an official statement on employee compensation amounts.
The part I find confusing, it includes seasonal and temporary workers. Target is expected to release the ratio of the CEO compared to the yearly compensation of the thousands of Holiday season workers it hires for 3 months?
Identification of Employees Covered by the Proposed Rule
“All employees of the registrant” would include:
1. All employees (including full-time, part-time, temporary, seasonal and non-U.S. employees)
2. Those employed by the company or any of its subsidiaries.
3. Those employed as of the last day of the company’s prior fiscal year.
CEO pay is already public. And this is going to end up on page 37 of a companies 68 page annual report.
And then there is this....
> Under the Securities and Exchange Commission's final rules, companies will get some flexibility in how they find the median. For instance, they can exclude 5 percent of their overseas workers when arriving at the number and use statistical sampling.
Companies can also use sampling to estimate median pay and they only have to recalculate this once every three years.
It looks like a company can cherry pick who they deem to be workers and what they consider pay.
This just seems like Elizabeth Warren trying to make political gains.
Or put another way. Apple releases earnings and we find that Tim Cook has one of the largest wage gaps due to him being paid in stock that is soaring in price and AAPL having so many apple store employees that bring down their median pay.
Are people going to suddenly stop investing in AAPL or demand change because of this? Will anyone notice at all?
* It is an unimplemented part of a law that was passed 5 years ago. Why the 5 year delay? * In the past 2 years, there were 280,000 public comments supporting the pay ratio rule. * Why would the page of the annual report on which this figure appears matter? As far as I can see from AAPL's report, the first page is fluff: http://investor.apple.com/secfiling.cfm?filingid=1193125-11-... * Did I mention it is a requirement of a law passed 5 years ago?
"Today's vote comes five years after Congress approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes the pay ratio rule. The vote also comes nearly two years after the SEC formally proposed the requirement."
http://www.npr.org/sections/thetwo-way/2015/08/05/429628037/...
Over the last 2 years we've been having a stock buyback craze, where corporations can issue unlimited amount of debt and use the proceeds to repurchase stock in an illiquid market pushing the stock to record highs.
Shaming CEOs into lowering their pay may work, but these same CEOs will only be rewarded more in options and stocks which do not have the SEC reporting treatment.
And this will only incentivice them to buy back even more stock, levering up companies even faster, transferring stakeholder value to shareholders while leaving bondholders footing the bill, and assuring of a promptly bankruptcy filing once interest rates rise.
If they plan on having equity included, that will complicate things, since you may have variation in vesting schedules.
One additional number to be calculated, after the reams of numbers have already been calculated. If your accountant and lawyer cannot get that right, it's time to find new ones.
Total pay includes equity grants, which will increase if the company does well, thus will correlate with stock performance.
The total pay can also be manipulated by CEO's targeting short term stock gains over long term growth, which is why more companies are looking at longer vests or clawbacks for equity compensation.
One long-running dispute has been over what mechanisms shareholders should have to exert oversight over the pay structure of the companies they own. There are bunch of proposals, from tweaks to the mandatory reporting rules (what this seems to be), all the way to allowing shareholders a direct vote on executive pay (the so-called "say on pay" [1]). Though you could certainly argue that this particular rule isn't a very effective means for shareholders to get control over executive pay; at best it seems like it will give them an occasionally-useful PR tool to pressure boards into restraining executive pay.
OK, so McDonalds is 10,000:25,000,000
Now what?