Yawn. The Pearl Meyer Comp Consulting Firm Calls The CEO Pay Ratio “A Big Fat Dud”

It’s no surprise that a firm that is itself compensated by telling corporate executives that they are worth a lot of money is calling the first-ever pay ratio disclosures “a big fat dud.” Of course they think that. Those numbers, required by the Dodd-Frank post-meltdown legislation and finally made public for the first time, make CEOs look bad. So they must be worthless, right?

They say:

Some have suggested the calculation is invaluable for investors. Really? Investors who are concerned with executive pay already express their concern through say-on-pay where companies ask shareholders to vote for or against their pay programs. Shareholders who are not satisfied with the say-on-pay outcome can sell their shares. Discussions with institutional investors don’t include pay ratio—it’s not on their radar.

We say: Yes, the “some” who have suggested it are investors, who are more credible in determining what investors want to see than service providers selected and paid by corporate executives. There are similar complaints from others solidly in the “if it’s good for the CEO, it’s good for us” camp, including CFOs and the business press. Perhaps the most ludicrous is the claim that finding out how many times more than the average worker a CEO is paid could be depressing.

Denial is so much comfier.

You notice that none of this comes from investors, who fought for this information and are glad to be able to incorporate it into their advisory “say on pay” votes, another new right required by post-catastrophe reform. But why listen to what large, sophisticated investors say they want to know? Maybe we should just let Pearl Meyer corp-splain it to us.

As the dawn follows the night, so must the “investors don’t know what they want” be followed by the “it’s too expensive” argument.

Others have suggested pay ratio disclosure sheds a light on income inequality. Yes, but existing disclosure of executive pay already shows how much executives are paid. If the goal is to highlight income inequality, couldn’t we do it in a less costly way? For example, we could disclose the ratio of a CEO’s pay to the median salary of a worker in the company’s industry. The Bureau of Labor Statistics provides plenty of industry data for comparison.

If companies don’t know what the median pay is for their employees, we suggest that what is expensive is their ignorance. They should want to know. They should have the capacity to know.

We find it material. We believe journalists, securities analysts, board comp committees, and scholars will as well. We look forward to developing many years of pay ratio data to help us understand better the ROI of the management and boards of our portfolio companies. In the meantime, we suggest that firms like Pearl Meyer spend more time telling clients what they need to hear instead of what they want to hear and leaving the determination of what shareholders need to know to shareholders themselves.

Source: The CEO Pay Ratio: A Big Fat Dud | Pearl Meyer

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