This week, the HR Policy Association’s so-called “Center on Executive Compensation” criticized a member of the Securities and Exchange Commission (SEC) for suggesting companies should consider voluntarily disclosing CEO-to-worker pay ratios. The HR Policy Association represents human resource executives of more than 325 of the largest U.S. corporations, and would prefer to keep secret the pay disparity between their bosses—the CEOs—and their employees.
CEO-to-worker pay ratios must be disclosed under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. But, thanks in part to lobbying by corporate groups such as the HR Policy Association, this provision of the Dodd-Frank Act has not gone into effect yet. The SEC has not yet issued the pay ratio disclosure rule despite receiving more than 20,000 letters favoring the rule from investors and the public.
Corporate groups have claimed they don’t know how much their median employee makes, and that this information is not of interest to investors or the public. The AFL-CIO has rebutted these concerns, pointing out that CEO-to-worker pay ratios have a material impact on employee morale, productivity and turnover. Moreover, companies can use statistical sampling to determine how much their median employee earns.
On Feb. 20, SEC Commissioner Luis Aguilar suggested that companies voluntarily provide investors with this information. “Moreover, risks relating to compensation go beyond the immediate incentives of a particular compensation plan or policy. The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can also create risks to an enterprise, including the risk of employee, customer and shareholder discontent,” he said.
This was too much for the defenders of CEO pay at the Center on Executive Compensation. In a Feb. 21 letter to Aguilar, the center asked him to retract his recent speech calling for companies to voluntarily disclose the ratio “due to the confusion it would likely generate.” The center’s letter says “the calculation of the median compensation of all employees…is unjustifiably complex.”
Given the center’s desperation to squash any disclosure of CEO-to-worker pay ratios, perhaps the HR Policy Association’s front group should change its name to the “Center for Executive Compensation.” To learn more about CEO-to-worker pay ratios and why the center is wrong, visit the AFL-CIO’s Executive Paywatch website.