Firms fret over pay ratio provision

Marketplace Staff Aug 31, 2010
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Firms fret over pay ratio provision

Marketplace Staff Aug 31, 2010
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STEVE CHIOTAKIS: A little-known provision squeezed into the financial reform bill before passage, now threatens to make for a PR nightmare in the corporate world. Publicly-traded companies are on the hook to release a ratio between the salaries of their chief executives and their average worker. Some companies are gearing up to ask the Securities and Exchange Commission to tone the law down, citing all the paperwork involved. But worker advocates say it will show just how big the pay disparity between CEO and average worker has gotten. Francesco Guerrera is a reporter for the Financial Times. He’s with us live from New York. Good morning, sir.

FRANCESCO GUERRERA: Good morning.

CHIOTAKIS: Thank you for your time.

GUERRERA: Thank you.

CHIOTAKIS: This isn’t a surprise, this push back from companies. Why would this rule be such a headache?

GUERRERA: They claim two things. One is they say it’s too complicated to comply with. And two, it’s useless. So they say it costs a lot of money to comply with the rule that you have to give the ratio of the pay of the CEO to the pay of the average employee. So you have to calculate the pay of all the employees, and that they say takes a lot of time and money. Second thing they say is it’s not going to add anything to the sum of human knowledge. They say that investors don’t want to know that and nobody else cares about the difference between the CEO and the average employee.

CHIOTAKIS: Does anyone know care?

GUERRERA: I think, in particular, union-backed pension funds care, right? So the labor unions want to know if the CEO is overpaid and more importantly if the workers are underpaid. So there is a sliver of the investment base that actually cares about this kind of ratio.

CHIOTAKIS: You know, I’m curious Francisco. Will this have an affect on how companies pay their CEOs? Are there going to be backroom deals or like hiding under the table stuff?

GUERRERA: No, I think what it’s going to do, though, is put yet another spotlight on the way CEOs have been paid. There’s a lot of complaints about the way CEOs have been paying themselves for the past few years and this adds just another layer of complication, another layer of public scrutiny to the way they’re paid.

CHIOTAKIS: Is the SEC going to back off on this?

GUERRERA: No, they can’t really back off. It’s in the law now. The SEC is in charge of writing the detailed rules for this. So what they companies are lobbying for is the dilution of some of the rules and trying to make it easier on themselves in terms of how you calculate the ratio. And how you go about doing this.

CHIOTAKIS: Indeed. Reporter Francesco Guerrera from the Financial Times in New York, thank you sir.

GUERRERA: Thank you.

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