Richard Trumka : Something wrong with CEO-to-worker pay ratios
American consumers and workers deserve more than generalities, he says
Editor’s Note: Richard Trumka is president of the AFL-CIO (American Federation of Labor and Congress of Industrial Organizations). The views expressed are his own.
Wal-Mart CEO Doug McMillon reportedly raked in $19.4 million in compensation in 2014. The typical Walmart associate, in contrast, starts at $9 an hour. This means that even with the modest pay increase won by Walmart workers earlier this year, McMillon still makes over 800 times more than this typical employee. Something is terribly wrong here.
True, the gap between CEO and worker pay has been an issue for decades. But it came into sharp focus as a result of the financial crisis of 2008 and the Great Recession that followed. Inappropriate compensation packages at financial services firms such as Bear Stearns and Lehman Brothers were identified as contributors to the crisis because they were said to encourage excessive risk taking by company executives. It is clear that when CEOs feel like they are playing with Monopoly money, it puts our entire economy in jeopardy.
So when the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was passed to rein in Wall Street greed, it included a provision mandating that the Securities and Exchange Commission require corporations to disclose their CEO-to-worker pay ratio.
Seems straightforward enough, right?
Unfortunately, Wall Street is much better at doling out lavish compensation packages than disclosing them. The business community is claiming it would cost more than $185,000 and almost 1,000 hours of staff time per company to calculate the CEO-to-worker pay figure.
This is nonsense, plain and simple. Employers should already have this information on the books. Dodd-Frank asks companies to do some simple calculations, not put a man on Mars.
Furthermore, it must be pointed out that the law only requires disclosure of the CEO-to-worker pay ratio. It does nothing to bring that ratio back into balance. It doesn’t raise pay for workers, reduce compensation for CEOs or force companies to change their compensation practices one iota. As we said at the time, Dodd-Frank was a compromise. The only barrier here is Wall Street’s fear of embarrassment.
Could that be why, in five years, the SEC has still not yet issued a final rule on CEO-to-worker pay?
In that time, the Olympic Games have occurred twice, the San Francisco Giants have won three World Series championships, and President Barack Obama was elected to a second term. It leaves the average working person – especially those who suffered most in the Great Recession – wondering what the hell is taking so long?
Securities and Exchange Commission Chair Mary Jo White committed to making implementation of the CEO-to-worker pay rule a priority when she was nominated, yet more than two years after being sworn in, the rule has not gone into effect.
The AFL-CIO is not sitting back.
We have submitted a Freedom of Information Act request about the scheduling of final action on this rule. Nineteen organizations who represent investors and the public also submitted a letter in support of this request. In addition, petitions from more than 165,000 Americans demanding that the commission finally implement the CEO-to-worker pay rule were delivered to the SEC, and more than 1,000 calls placed as well.
Public disclosures show that S&P 500 CEOs made 373 times the average rank-and-file worker in the United States in 2014. But we will not know the actual ratio at each individual company until the SEC enforces the CEO-to-worker pay rule.
Finally, after more than five years, the SEC is scheduled to vote on a final rule.
We commend the commission for moving forward and will be reading the rule carefully when it is released Wednesday. The statute is clear – companies are to report the ratio of “the median of the annual total compensation of all employees” compared with the CEO’s pay. We are looking to the SEC to issue a strong rule, which adheres to congressional intent, and does not have loopholes that allow companies to exclude portions of their workforce.
American consumers and workers deserve more than generalities – they have a right to accountability and transparency when it comes to the pay practices of corporations.
Wage and income inequality has spiraled out of control. There is a growing recognition that the Great Recession wasn’t cyclical, but the result of deliberate policy choices.
The rule requiring companies to disclose their CEO-to-worker pay ratio is long overdue, and the SEC should implement it without delay.