Friday, July 26, 2013

CEO PAY GOES UP Overpaid? Or Worth Every Penny?

CEO PAY GOES UP

Overpaid? Or Worth Every Penny?

By THE EDITORIAL BOARD
Published: July 13, 2013
Major corporate filings for 2012 have now provided an updated portrait of
executive pay. The median compensation of chief executives at 200 of the
nation’s biggest public companies came in at $15.1 million last year, a 16
percent jump from 2011, according to Equilar, the executive compensation
analysis firm. The pay packages — including salary, bonus, benefits, stock
and option grants — ranged from $96.2 million at Oracle to $11.1 million
at General Motors.

Is that excessive? One way to answer that question would be to look at
the pay gap, the ratio of the pay of the chief executive to that of the
company’s employees. But nobody really knows what the gaps are. Three
years after passage of the Dodd-Frank financial reform law requiring companies
to disclose the gaps, the Securities and Exchange Commission has not even
proposed rules to put the provision into effect. Nor has Congress or the
administration pressed the agency to get on with the job.

The pay gap information has many potential uses. It could help
investors judge the effect of a company’s pay structure on productivity,
efficiency, innovation and other aspects of work-force performance. It
could also help consumers determine whether companies are solid
corporate citizens or sources of enrichment of the few. And it could help
economists and policy makers detect emerging asset bubbles and
impending crashes, which generally correlate with rising income
disparities.

But corporations don’t want any of that. To hear them tell it,
computing the pay gap is too hard. Nonsense. The real obstacle is that
many chief executives do not want to have to defend what are sure to
be some indefensibly large gaps.

There is no doubt that the gaps are huge. Using government data
on worker pay, the Economic Policy Institute has calculated that the
ratio of C.E.O. pay to employee pay was 273 to 1 in 2012, or
202 to 1, depending on how stock options were accounted for. Either
way, that is far higher than it has been for most of the past 50 years.

What remains unknown, however, is which specific corporations are
driving the gaps. That is the information investors and consumers
need to fight effectively against executive pay packages that are
unjustifiable and disadvantageous.

Corporate executives also resisted pay disclosure when the Securities
Exchange Act of 1934 first required public companies to report C.E.O.
compensation. That law helped to establish corporate norms that long
endured, in which executive pay was a more modest multiple of employee
pay. Those norms, weakened through time, could be reinforced with pay
gap disclosure, but only if politicians and regulators find the courage to
follow through.


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