Viewpoint

Why tiptoe around exorbitant CEO pay?

When the company that you run pays you hundreds of times more than it pays its typical employee, the least you can do is endure some awkward conversations about the subject.

Last week, a divided Securities and Exchange Commission voted to require publicly traded companies to disclose the ratio between what they pay their chief executive officers and what they pay their median workers.

It’s not a shock that GOP officials and business groups would oppose such meddling. What’s surprising is their level of indignation over this modest rule.

David Gallagher, one of the SEC’s two Republican commissioners, blasted the rule as “social policy masquerading as disclosure requirements.” And social policy it is: The labor groups that pushed for the rule, a requirement under the 2010 Dodd-Frank financial-regulation-reform law, want to shame companies into paying CEOs less.

Michael Piwowar, the other Republican commissioner, issued a statement decrying “Saul Alinskyan tactics by Big Labor” and a “strategy of appeasement” by the three Democratic commissioners.

Meanwhile, David Hirschmann, president of the US Chamber’s Center for Capital Markets Competitiveness, dismissed the pay-gap rule as an effort “to advance special interest agendas.” In a Wall Street Journal article, he speculated that the Miami Heat’s pay gap was higher when the team still employed LeBron James.

The problem is that some executives receive LeBron-level compensation packages even when their companies stumble.

According to a study by the Economic Policy Institute, the average CEO earned 30 times the typical worker in 1978; today, that ratio is 303 to 1. As executive pay spirals, what companies are getting in exchange isn’t terribly clear. Study after study shows little or no correlation between CEO pay and return to shareholders. Some research even indicates that companies with the highest-paid chief executives fare the worst.

Put these studies together, and a picture begins to form: Executive compensation has risen because CEOs get measured by lenient standards and stack their companies’ boards.

Nothing in the SEC’s pay-gap rule precludes a company from paying its CEO whatever it likes, and even proponents acknowledge that the ratio is an imperfect measure. If the issue attracts attention, some companies will find ways to game the formula.

What opponents of the rule fear most, though, is that the pay ratio will give workers and regulators a clearer picture of what’s going on and that they'll demand policy changes accordingly.

Inequality is growing for lots of reasons, including inexorable technological change. The question is whether our public policies should accelerate that dynamic or counteract it. When middle-class workers must satisfy themselves with stagnant wages, there’s no reason to defer to the delicate sensibilities of exorbitantly paid executives.

Dante Ramos is a columnist for The Boston Globe.

  Comments