In a move that is expected to solve absolutely nothing and effect no change other than to annoy everybody, the Securities and Exchanges Commission ruled that CEOs must disclose their ratio of pay as compared to the median pay within their firm. The rule, which will affect public companies, was approved by a committee of five on a 3-2 party line vote.
The SEC stopped short of going full Socialist by limiting the ratio to a certain level, mostly because that would be absolutely insane. They did, however, throw a bone to those who feel it is their right to know how much money other people make.
Generally speaking, CEO and executive pay in the United States has been rising at astonishing rates, while low and middle income workers have risen at much lower levels. In the world of a free market, people are paid what the market will bear. Well, except in the case of minimum wage laws, that ensure people will make a certain level even if their contribution or economic value to the company is in reality much lower.
The rule will take effect starting in 2017 and exempts companies that have less than $75 million in externally held shares or those that make less than $50 million in revenue. Other companies that will be exempted are those not publicly held. The SEC says they think the rule will cost companies around $73 million per year to comply with, though most private sector and business groups (read: those who actually know) believe it will be nearly ten times that amount.
The rules will ultimately serve no purpose other than for populists to use it as a means of class warfare. In reality, many companies pay executives in ways that could be outside of the mandatory reporting or, in the case of people like Google CEO Larry Page, hold so much in stocks and other assets that the salaries are meaningless. Page’s salary for each of the last few years was $1. This would give Google a major negative ratio for CEO to median employee pay, and it’s not the only company to hold to such a model, as salaries become nothing but accounting tools. Additionally, the increase in the value of the stocks will not be included as part of the compensation, meaning that someone could theoretically earn hundreds of millions of dollars from a company, but take next to nothing in salary.
Don’t think the companies haven’t realized this either. The irony of the new rule is that it may very well show that CEOs have such a negative ratio to their employees that they will now have to increase their own salaries in order to avoid in further scrutiny or, even more ironically, attract more money from investors seeking out companies with more money and those who want to make a political statement. After all, if the public is shown that a CEO makes .0001 what their median employee makes, vs. one that make 35 times as much, which one will likely receive more scrutiny and suspicion?
It’s a good rhetorical tool for Socialists like Bernie Sanders to use, though.