If the idea behind the SEC's new CEO pay ratio requirement was to somehow shame top executives over their compensation packages, that strategy won't work.
A study by Towers Watson asked 375 corporate executives and compensation professionals what their primary concerns were about the proposed rule, which would require public companies to disclose the ratio of their CEO compensation to the median compensation of all other employees. The ratio is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The feedback the researchers received was basically this: We're not worried about how the ratio looks to the public or our board. But mining the information required to arrive at the ratio will be a big pain.
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The rule isn't in effect yet. The SEC is taking public comment on it for another couple of months. From the responses to the Towers Watson survey, however, the only people who are worried about the ratio are the numbers-crunchers.
"The poll found that only one in 10 employers believes the CEO pay ratio disclosure will provide important information for investors and companies," Towers Watson reported. "More than half (56 percent) of the respondents expressed concern about complying with the new disclosure requirement, with the most common concerns being gathering the pay data, determining their data-sampling approach and identifying the median employee."
A third of the respondents said they didn't think they currently have access to the data they'll need to comply with the rule.
Only 31 percent identified their main concern as where their CEO-to-worker pay ratio would rank against their peers, the industry or the marketplace. Just 21 percent thought the toughest part of the process would be explaining the ratio to shareholders.
"Determining the best approach to identifying the median employee and calculating a pay ratio will be no easy task, especially for large global companies. There's a lot of uncertainty about what this will cost," said Todd Lippincott, North America leader of executive compensation at Towers Watson. "The companies that we have been meeting with are beginning to get their arms around the proposed rule and the work that will be required to comply, even though most don't believe it will provide important information for investors."
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
