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Otinanist
Companies lobby to hide disparity in CEO, worker pay
I set some decoy bolds to confuse investors
WASHINGTON — One financial figure some big U.S. companies would rather keep secret is how much more their CEO makes than their typical worker.
A group backed by 81 major companies — including McDonald's, Lowe's, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of this comparison.
The companies and some Republicans in Congress call the comparison between the chief executive and everyone else in the company "useless."
But some Democrats and religious investors say the information should be issued to help investors make ethical investment decisions and to highlight the nation's growing income disparity. Opponents of the disclosure, they say, want to hide the scale of outrageous executive-compensation packages.
A House committee Wednesday approved a bill that would repeal the disclosure requirement. Disclosing such comparisons "can mislead or confuse investors," said Rep. Nan Hayworth, R-N.Y., who filed the bill to repeal it and who counted three financial firms among her top donors. "It creates heat but sheds no light."
The vote was largely along partisan lines: Republicans supported repeal, angering Democrats. "The real reason House Republicans want to keep the typical worker's pay secret is that it may embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker," said Sen. Robert Menendez, D-N.J., who added the requirement to the mammoth financial overhaul bill last year.
Income inequality has been growing rapidly in the United States since the 1970s, and recent academic research has indicated the growth of executive pay is one of the key reasons.Executive compensation at the nation's largest firms has more than quadrupled in real terms since the 1970s, according to research by Carola Frydman from MIT's Sloan School of Management and Raven Molloy of the Federal Reserve, even as pay for 90 percent of America has stalled.
In 1970, average executive pay at the nation's top companies was 28 times average worker income, according to the Frydman-Molloy data and numbers provided by Emmanuel Saez at the University of California, Berkeley. By 2005, executive pay had jumped to 158 times that of the average worker.
Concern over the income disparity led Menendez to add the reporting requirement to the financial-overhaul legislation, which Congress approved last year.
The requirement calls for public companies to report the median of annual total compensation for workers and the annual total compensation for the chief executive, and to report the ratio of the two.
Criticism of the bill has been led by the Center of Executive Compensation, which is part of the HR Policy Association, which represents human-resources executives at 325 large companies.
The thrust of the group's criticism is that the information would have little value in making comparisons between companies because different firms have different labor forces, different amounts of contract labor and workers of different skill levels. Wages also vary across regions and industries.
Current rules already require disclosure of executive compensation. The new requirement merely calls for the additional disclosure of median worker pay at the company. The critics say this would add little to what is already known.
"You can already tell where a CEO falls relative to his peers," Tim Bartl, senior vice president and general counsel for the Center for Executive Compensation. "What is this number going to tell us?"
Last year, the HR Policy Association paid Bartl's law firm, McGuiness & Yager, more than $1.5 million for lobbying, according to the website opensecrets.org.
Although the critics question the value of the disclosure, some investors who seek to align their ethical beliefs and their portfolios see value in contrasting chief executive pay to that of workers.
Proposals to disclose the comparison were made at at least 10 companies last year, often by religious groups that own shares. The Sisters of Charity of the Blessed Virgin Mary made one at General Electric; the Benedictine Sisters of Mount Angel at Goldman Sachs; and Sisters of St. Francis of Philadelphia at Coventry Health Care.
For example, last year, Franciscan Sisters of Perpetual Adoration proposed at a shareholder meeting of Allstate that the company disclose a comparison of executive pay and that of the lowest-paid employees.
"If they have nothing to hide, why wouldn't they put it in their annual report, so all shareholders would know?" said Sister J. Tydrich, treasurer of the group. "If you give all the pay to the CEO, you can't give it to the workers."
At times, some companies have sought to restrain the disparities between executives and other workers.
For example, Whole Foods, the upscale grocery with more than 300 stores nationwide, has aimed to limit the cash compensation paid to anyone in the company to 19 times the average pay at the company.
"We think it's important for employees to have transparency into compensation across the company and not to have gross inequity between the executives and everyone else," said Mark Ehrnstein, the company's chief human-resource executive.
In 2010, the average annual wage was about $37,000, which dictated a salary cap of $703,000, company officials said.
This limit, however, does not apply to stock and options, and a couple of top officials earned much more. A.C. Gallo, president and chief operating officer, earned $4.6 million, according to proxy statements, and co-chief executive Walter Robb made just slightly less.
Even so, supporters of such disclosures said the example of Whole Foods shows that at least some companies and some investors see value in comparing top salaries with those of everyone else.
"We think it's meaningful information," Ehrnstein said. "We're convinced that the transparency engenders trust for our employees."
A group backed by 81 major companies — including McDonald's, Lowe's, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of this comparison.
The companies and some Republicans in Congress call the comparison between the chief executive and everyone else in the company "useless."
But some Democrats and religious investors say the information should be issued to help investors make ethical investment decisions and to highlight the nation's growing income disparity. Opponents of the disclosure, they say, want to hide the scale of outrageous executive-compensation packages.
A House committee Wednesday approved a bill that would repeal the disclosure requirement. Disclosing such comparisons "can mislead or confuse investors," said Rep. Nan Hayworth, R-N.Y., who filed the bill to repeal it and who counted three financial firms among her top donors. "It creates heat but sheds no light."
The vote was largely along partisan lines: Republicans supported repeal, angering Democrats. "The real reason House Republicans want to keep the typical worker's pay secret is that it may embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker," said Sen. Robert Menendez, D-N.J., who added the requirement to the mammoth financial overhaul bill last year.
Income inequality has been growing rapidly in the United States since the 1970s, and recent academic research has indicated the growth of executive pay is one of the key reasons.Executive compensation at the nation's largest firms has more than quadrupled in real terms since the 1970s, according to research by Carola Frydman from MIT's Sloan School of Management and Raven Molloy of the Federal Reserve, even as pay for 90 percent of America has stalled.
In 1970, average executive pay at the nation's top companies was 28 times average worker income, according to the Frydman-Molloy data and numbers provided by Emmanuel Saez at the University of California, Berkeley. By 2005, executive pay had jumped to 158 times that of the average worker.
Concern over the income disparity led Menendez to add the reporting requirement to the financial-overhaul legislation, which Congress approved last year.
The requirement calls for public companies to report the median of annual total compensation for workers and the annual total compensation for the chief executive, and to report the ratio of the two.
Criticism of the bill has been led by the Center of Executive Compensation, which is part of the HR Policy Association, which represents human-resources executives at 325 large companies.
The thrust of the group's criticism is that the information would have little value in making comparisons between companies because different firms have different labor forces, different amounts of contract labor and workers of different skill levels. Wages also vary across regions and industries.
Current rules already require disclosure of executive compensation. The new requirement merely calls for the additional disclosure of median worker pay at the company. The critics say this would add little to what is already known.
"You can already tell where a CEO falls relative to his peers," Tim Bartl, senior vice president and general counsel for the Center for Executive Compensation. "What is this number going to tell us?"
Last year, the HR Policy Association paid Bartl's law firm, McGuiness & Yager, more than $1.5 million for lobbying, according to the website opensecrets.org.
Although the critics question the value of the disclosure, some investors who seek to align their ethical beliefs and their portfolios see value in contrasting chief executive pay to that of workers.
Proposals to disclose the comparison were made at at least 10 companies last year, often by religious groups that own shares. The Sisters of Charity of the Blessed Virgin Mary made one at General Electric; the Benedictine Sisters of Mount Angel at Goldman Sachs; and Sisters of St. Francis of Philadelphia at Coventry Health Care.
For example, last year, Franciscan Sisters of Perpetual Adoration proposed at a shareholder meeting of Allstate that the company disclose a comparison of executive pay and that of the lowest-paid employees.
"If they have nothing to hide, why wouldn't they put it in their annual report, so all shareholders would know?" said Sister J. Tydrich, treasurer of the group. "If you give all the pay to the CEO, you can't give it to the workers."
At times, some companies have sought to restrain the disparities between executives and other workers.
For example, Whole Foods, the upscale grocery with more than 300 stores nationwide, has aimed to limit the cash compensation paid to anyone in the company to 19 times the average pay at the company.
"We think it's important for employees to have transparency into compensation across the company and not to have gross inequity between the executives and everyone else," said Mark Ehrnstein, the company's chief human-resource executive.
In 2010, the average annual wage was about $37,000, which dictated a salary cap of $703,000, company officials said.
This limit, however, does not apply to stock and options, and a couple of top officials earned much more. A.C. Gallo, president and chief operating officer, earned $4.6 million, according to proxy statements, and co-chief executive Walter Robb made just slightly less.
Even so, supporters of such disclosures said the example of Whole Foods shows that at least some companies and some investors see value in comparing top salaries with those of everyone else.
"We think it's meaningful information," Ehrnstein said. "We're convinced that the transparency engenders trust for our employees."
I set some decoy bolds to confuse investors
