One of the requirements of Dodd-Frank, the U.S. financial reform legislation passed in the aftermath of the 2008 global financial crisis, was that public companies reveal the pay multiple of their chief executive compared to their rank-and-file workers. Almost three years on, the U.S. Securities and Exchange Commission has yet to draw up regulations to implement Section 953(b)(1) of the act (which mandates the reveal). Some of the biggest companies are lobbying against the SEC doing so, even though it is a merely reporting requirement and does not involve compensation caps along the lines of those that the European Union is introducing for bankers.
In the interim, Bloomberg has done the calculations as best it can using government median pay-and-benefits data aggregated by industry for workers and taking chief executive compensation from company proxy statements. It finds that the gap between what companies pay their chief executive and their average workers has widened by 20% since 2009. Somehow, we are not surprised.
The average multiple at the component companies of the S&P 500 stock index is 204 times, Bloomberg reckons, up from 170 times in 2009. By way of comparison, half a century ago it was on the order of 20 times, but that was when stock and stock option awards, which can vest over many years, didn’t form the core of chief executives’ compensation.
At the top of Bloomberg’s table, there are eight companies where the ratio is more than 1,000-to-1 based on the latest available year’s data — JC Penney, Abercrombie & Fitch, Simon Property Group, Oracle, Starbucks, CBS, Ralph Lauren and Nike. Each may reflect the particular circumstances of those companies, and in some cases multi-year vesting stock options, but the numbers overall will reinforce the popular view that the rewards of the recovery have been disproportionately skewed towards the pay packets of the highest earners.