
SEC adopts rules mandating disclosure of CEO-worker pay ratios - anigbrowl
http://www.reuters.com/article/2015/08/05/sec-rule-ceopay-idUSL1N10G1IY20150805
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mod
Can someone explain to me why we're outraged that CEOs make lots of money? I
truly don't understand it.

My presumption is that CEOs are adding enough value to be worth their pay,
just like every other worker (should be).

~~~
_delirium
There's a lot of suspicion that your presumption isn't accurate. It's a fairly
big area of research, though. One alternate hypothesis is a form of "executive
capture", that companies nominally owned by shareholders are actually run by
more of a clique of executives, who serve on each others' boards and pay each
other large salaries. Some mild but inconclusive correlational evidence for
that view is that when controlling for other factors (size, industry, etc.),
CEOs are paid less at private companies and companies with concentrated
ownership, than at companies with diffuse ownership—suggesting that when the
owner is in charge and paying attention, they prefer to rein in executive pay.

~~~
paulhauggis
"There's a lot of suspicion that your presumption isn't accurate"

If this is the case, the only people that should be worried about it are the
shareholders and the other people that own the company.

If I was running a company and I had more money to spare (because I couldn't
pay the CEO past a certain amount of money), I'm not just going to pay a
worker because it sounds nice. Workers should be paid based on market value
and the value they bring to the company.

~~~
dbcfd
> If this is the case, the only people that should be worried about it are the
> shareholders and the other people that own the company.

And the SEC is responsible for improving company/shareholder relationships, so
this falls under their directorate.

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mey
I have thought once I establish a company, I might tie CEO salary to be
limited to being a multiple of the least paid employee. Then what the good
ratio is becomes an interesting question to me. Is 10x enough? Is 100x too
much? Is a CEO's productivity worth 100x the lowest paid employee?

If we go with the lowest paid employee is making 30k a year, and the CEO is
making 3mil? Is that too much, not enough, just right?

There isn't a right answer and it entirely depends on the purpose of the
company and the model, but I do think it's an interesting way to keep a
reality check on inequality voluntarily inside a company.

~~~
atmosx
> Is a CEO's productivity worth 100x the lowest paid employee?

No. Not if you want to live in a peaceful society, but we're talking religions
again... You are correct, there is no right answer. Views vary based on how
much 'socialist' or 'liberal' someone is.

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brwnll
First, here is the link to the actual release:
[http://www.sec.gov/News/PressRelease/Detail/PressRelease/137...](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539817895)

Because this was unclear to me initially, this DOES factor in complete CEO
compensation (not just salary).

The interesting part is companies will now be required to disclose the mean
salary of it's general employees (C-level salaries are already disclosed), it
would be interesting to see Google, or any qualifying tech business, give an
official statement on employee compensation amounts.

The part I find confusing, it includes seasonal and temporary workers. Target
is expected to release the ratio of the CEO compared to the yearly
compensation of the thousands of Holiday season workers it hires for 3 months?

Identification of Employees Covered by the Proposed Rule

“All employees of the registrant” would include:

1\. All employees (including full-time, part-time, temporary, seasonal and
non-U.S. employees)

2\. Those employed by the company or any of its subsidiaries.

3\. Those employed as of the last day of the company’s prior fiscal year.

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chollida1
I'm not really sure what this is going to accomplish.

CEO pay is already public. And this is going to end up on page 37 of a
companies 68 page annual report.

And then there is this....

> Under the Securities and Exchange Commission's final rules, companies will
> get some flexibility in how they find the median. For instance, they can
> exclude 5 percent of their overseas workers when arriving at the number and
> use statistical sampling.

Companies can also use sampling to estimate median pay and they only have to
recalculate this once every three years.

It looks like a company can cherry pick who they deem to be workers and what
they consider pay.

This just seems like Elizabeth Warren trying to make political gains.

Or put another way. Apple releases earnings and we find that Tim Cook has one
of the largest wage gaps due to him being paid in stock that is soaring in
price and AAPL having so many apple store employees that bring down their
median pay.

Are people going to suddenly stop investing in AAPL or demand change because
of this? Will anyone notice at all?

~~~
33W
They should just make those Apple Store employees into contractors </s>

~~~
rhino369
Even easier than that. Spin off Apple Store LLC with APPL as the sole member.

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sandworm101
More accurate headline: "SEC Adopts CEO Pay Ratio Rule, Five Years After It
Became Law"

"Today's vote comes five years after Congress approved the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which includes the pay ratio rule.
The vote also comes nearly two years after the SEC formally proposed the
requirement."

[http://www.npr.org/sections/thetwo-
way/2015/08/05/429628037/...](http://www.npr.org/sections/thetwo-
way/2015/08/05/429628037/sec-to-vote-on-requiring-companies-to-disclose-ceo-
pay-ratio)

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randomname2
This may backfire.

Over the last 2 years we've been having a stock buyback craze, where
corporations can issue unlimited amount of debt and use the proceeds to
repurchase stock in an illiquid market pushing the stock to record highs.

Shaming CEOs into lowering their pay may work, but these same CEOs will only
be rewarded more in options and stocks which do not have the SEC reporting
treatment.

And this will only incentivice them to buy back even more stock, levering up
companies even faster, transferring stakeholder value to shareholders while
leaving bondholders footing the bill, and assuring of a promptly bankruptcy
filing once interest rates rise.

~~~
dbcfd
I'm assuming this is a ratio of "pay" not compensation, where CEO pay is their
salary, and worker pay is salary or total dollars earned. Essentially cash to
cash.

If they plan on having equity included, that will complicate things, since you
may have variation in vesting schedules.

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apalmer
I am not sure what the big deal is with this. I vaguely understand why
regulators want this to be public knowledge. I have no understanding of why
effort is being spent in opposing this.

~~~
drak0n1c
Because putting more items into filings costs money and creates the
possibility of liability if anything is off. Think of your tax return.
Rigorous legal and financial document preparation is expensive. Large
corporations can afford the bloat of thousands of regulatory requirements,
smaller companies not so much. These added costs are borne by society in the
long run, similar to how airline security regulations sometimes cause tickets
to cost nearly two times what the original fare would be. This regulation
isn't vital for informing investors of the performance of a company (this kind
of ratio can be done by anyone who cares to do so using already available
information).

~~~
drauh
Pull the other one: it's got bells on it.

One additional number to be calculated, after the reams of numbers have
already been calculated. If your accountant and lawyer cannot get that right,
it's time to find new ones.

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drauh
From the WSJ: CEO Pay vs. Performance Executive compensation is increasingly
geared toward results, but some CEOs still got big paydays even when their
investors didn’t do so well.

[http://graphics.wsj.com/ceopay-2015/](http://graphics.wsj.com/ceopay-2015/)

~~~
dbcfd
This is total pay, not salary based compensation.

Total pay includes equity grants, which will increase if the company does
well, thus will correlate with stock performance.

The total pay can also be manipulated by CEO's targeting short term stock
gains over long term growth, which is why more companies are looking at longer
vests or clawbacks for equity compensation.

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thrill
What on earth does this have to do with the SEC's charge of fighting fraud any
other illegalities?

~~~
_delirium
Besides fighting fraud, the SEC's other main purpose is to mediate the
shareholder/company relationship, ensuring that people who own a share of a
company have their ownership rights respected, and setting procedures for what
information they're entitled to, and what mechanisms they can use to control
the company's decision-making.

One long-running dispute has been over what mechanisms shareholders should
have to exert oversight over the pay structure of the companies they own.
There are bunch of proposals, from tweaks to the mandatory reporting rules
(what this seems to be), all the way to allowing shareholders a direct vote on
executive pay (the so-called "say on pay" [1]). Though you could certainly
argue that this particular rule isn't a very effective means for shareholders
to get control over executive pay; at best it seems like it will give them an
occasionally-useful PR tool to pressure boards into restraining executive pay.

[1]
[https://en.wikipedia.org/wiki/Say_on_pay](https://en.wikipedia.org/wiki/Say_on_pay)

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kevinpet
How does this political agenda relate to protecting investors? Is the SEC now
the department of labor?

~~~
JohnTHaller
Investors have a right to know how the company they invest in is spending
money. Lots of investors don't exactly like the absurd levels of C-level pay
or golden parachutes for failed execs.

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gesman
Meaningless. $1 salary with $100,000,000 worth of liquid securities will skew
this ratios.

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austenallred
Seems like the most worthless piece of data you could gather about a company.

~~~
dbcfd
It provides a proxy to whether the management is looking to increase worker
morale and productivity for long term gains, or inflate stock prices for short
term gains. It also provides a way to compare companies within an industry, to
see which might be overpaying management, with stock returns varying
accordingly.

~~~
austenallred
By median pay of other employees?

OK, so McDonalds is 10,000:25,000,000

Now what?

~~~
dbcfd
So Burger King has a ratio of 10,000:30,000,000, but it has a lower profit
margin. Shareholders can then push for a change to compensation, since their
CEO is likely overpaid, or their workers are underpaid.

