The public shaming of America's CEOs
The smartest insight and analysis, from all perspectives, rounded up from around the web:
"The pay gap between workers and the boss is about to get a bit more obvious," said Dean Starkman and Samantha Masunaga at the Los Angeles Times. The Securities and Exchange Commission voted last week to require the nation's 4,000 public companies to disclose the salary difference between the CEO and the firm's average worker, starting in 2017. It's taken regulators five years to finalize the controversial rule, which was part of the 2010 Dodd-Frank financial reform bill, and the results are likely to dump fuel on an "already heated debate" about U.S. income inequality. The typical CEO now makes more than 300 times as much as the average rank-and-file worker, according to the left-leaning Economic Policy Institute. In 1965, it was just 20 times as much.
This shame game just might rein in CEO pay where previous attempts have failed, said Gretchen Morgenson at The New York Times. Once the pay gap is boiled down to an "easily graspable and often decidedly shocking number," employees and consumers might actually protest, and red-faced corporate boards will be forced to act. As soon as the outlandish ratios begin coming out, we'll hear from "corporate apologists" that CEOs earn their megamillions, because they deliver impressive returns just like "star baseball players or movie stars," said Robert Reich at Huffington Post. "Baloney." The stock market has surged so much over the past three decades, and corporate tax rates have become so generous, that a CEO could have "played online solitaire" all day long and still watched the company's share price soar.
The SEC's job is to protect investors, not act as "the nation's income-inequality cop," said Roger Lowenstein at Fortune. If anything, this rule could backfire by putting pressures on companies that have nothing to do with business realities. The pay gap between McDonald's CEO Steve Easterbrook and the chain's burger flippers will look much worse than that between a Silicon Valley tech CEO and his well-paid programmers. But if you are a McDonald's investor, the pay gap is largely irrelevant. What's important is whether or not Easterbrook can sell more hamburgers. "This rule serves no business purpose," said The Wall Street Journal in an editorial. Companies already disclose CEO pay and have for decades. What's more, compliance will be expensive; the SEC says the total costs of calculating and reporting average salaries will top $1 billion. The last thing businesses need is another useless, costly regulation that will just be used as a "political stick" against them.
"Instead of obsessing about how much CEOs earn," we should focus more on "how their pay is determined," said Paula Dwyer at Bloomberg View. CEO pay is nearly always tied to how well a company's stock performs, even though that "doesn't necessarily measure how well or poorly a CEO has managed a company." One fix might be to pay CEOs in corporate bonds, "which would give executives reasons to borrow less, take fewer risks, and manage for the longer term." Or we could pay them based only on actual, underlying performance. Who knows? That "might even result in some CEOs being paid less."