The Wall Street Journal, on September 22, 2013 reported on the SEC’s proposal about measuring a CEO’s pay with a pay ratio. The article, Slicing, Dicing CEO Paychecks mentions that the proposal would compare the pay of the CEO to that of the typical employee. It seems that CEOs earn an exorbitant amount, maybe too much. It seems unfair that employees don’t make that much money. If the CEOs are making so much money, the company could be spreading the wealth around with its employees. Further, in some cases the employees are very poorly compensated. It does not seem fair to have a lot of people poorly compensated and one benefiting from that. To some people that really matters, and the SEC wants compaie’s to disclose that, but there are reporting issues with that. First, you can’t simply ask a company to say whether it’s pay policies are unfair to its employees. To go along with that, we have to figure out a way that that statistic can be reported in a way that makes sense, and is effective.
There are a couple of ideas that have been thrown around about how to compare that pay disparity. On Wednesday the SEC proposed that the companies compute the pay of the median worker, and that they compare that to the salary of their CEO. Ideally, that would show how many times more the CEO makes than the median worker. An earlier data analysis from 2010 from Radford showed that certain things would affect the ratio such as whether the company was global or domestic. Global companies tended to have much higher ratios which meant their CEO was making much more than the typical employee. It was interesting that the CEO pay ranged so widely. The article mentioned that CEOs were making 10 times more than the typical employee under certain conditions, under other conditions they were making 78 times more than the typical conditions. .That in itself bring sup two issues, how reliable are the numbers, and the other it is complicated to gather this data. Other factors that could skew the ratio would be the reporting of part-time employees, temporary employees, outsourcing, use of independent contractors. The ratio does seem like it would be a good way to start showing transparency about the CEOs pay and the company’s employee
