SEC waits to tackle the CEO-worker pay gap

Companies balk at complying with provision of Dodd-Frank requiring disclosure of median employee income.

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In light of Oxfam’s study on inequality that found the top 1 percent of earners will have about half of the world’s wealth by this time next year, pressure has increased for corporations to be forthcoming about their CEO-worker income ration.

Companies have been balking at complying with provision of Dodd-Frank requiring disclosure of median employee income.

Oregon Business examined how this breakdown affects businesses in the Beaver State in its January issue:

“We’ve seen that high pay disparities inside a company can really hurt employee morale and productivity,” says Jonas Kron, the Portland-based director of shareholder advocacy for the socially responsible investment firm Trillium Asset Management. “If your assets as a company feel resentful walking out the door every day, then they’re not putting their all into their work.”

In one of the comments filed with the SEC, Raymond Link, CFO of Hillsboro-based FEI, urged the commission to exclude foreign workers from the ratio calculation. About 70% of the company’s approximately 2,600 employees are based outside the United States, with large contingents of skilled workers in the Czech Republic and the Netherlands. Given differences from country to country in standard benefit packages, costs of living and even currency values, Link estimated that computing a multinational median wage would necessitate more than 1,000 hours and $250,000 initially, and over 500 hours and $100,000 annually after that.

Link also pushed the SEC to let companies simply pull workers’ wages from W-2s instead of employing the labor-intensive method used in calculating executives’ compensation for SEC filings. In an interview with Oregon Business, the CFO explains that the latter method requires companies to account for projected compensation like as-yet-unearned bonuses and as-yet-unexercised stock options. “To do that same calculation for every employee, even just in the U.S., would be extremely burdensome,” he says.

On Tuesday, the New York Times reported on the SEC’s failure in enacting the rule. The story asked how difficult it is for corporations to evaluate the disparity to comply with the provision:

In truth, it’s harder than you might imagine. The S.E.C. estimates companies will spend some $73 million annually to calculate their figures and comply with the law. The U.S. Chamber of Commerce, the main business lobbying group in Washington, claims it will cost 10 times that, more than $700 million annually. The Center on Executive Compensation, a policy group and lobbying organization for business on pay issues, says the cost will be $186 million.

Whatever the true costs of the calculations, the challenge is that most multinational companies have various payroll systems around the world. Thus, it’s not easy to just press a few buttons on a calculator to figure out the median pay of a company’s workers.