[Issue 054] How much more does your CEO make than you?
April 3, 2018 // Issue #054
April 1st just passed, and there were many jokes, but this week's topic sadly does not fall under the April Fool's Day category: CEO pay.
For those of you who aren't business nerds, we are about to embark on reporting season for publicly traded companies here in the US. And thanks to a recently implemented Pay Ratio Disclosure Rule, we are likely about see a lot more conversation about CEO pay in the media.
Here's what to know to sound smart:
- The rule requires companies to disclose the ratio of the median of the annual total compensation of all employees to the CEO's in their 2017 annual reports.
- It is connected to the Dodd-Frank Act, which was that deathly boring post-recession legislation all about Wall Street reform and consumer protection.
- 45's people tried to shut it down. Last February the acting SEC chairman opened a comment period for companies to report the "challenges" they were having in preparing for compliance. Because, you know, data is hard for million and billion dollar companies.
- The comment period resulted in a mix of responses, some saying that disclosure is "burdensome" and "immaterial" to understanding compensation practices. Others supported for reasons like transparency, especially investors who do, in fact, find the information material for their investment decisions.
- Ultimately last September the SEC made the decision to move forward with the rule and simply offered more clarity to companies on how to implement.
So what's next?
Companies have already started reporting. Fortune 100 company Honeywell was the first to report its ratio, which was 333:1. Since then we've seen more, including Whirlpool (365:1), Humana (344:1), JPMorgan (364:1), Goldman Sachs (163:1). So far, the average ratio is 77:1.
I expect we will see some pretty interesting media coverage as we head into earnings season, which will result in a steady stream of disclosures. Here are a few articles that have already caught my attention:
- Many American Workers Will Soon Be Able To Compare Their Salary To Company CEOs [NPR]
- As companies reveal gigantic CEO-to-worker pay ratios, some worry how low-paid workers might take the news [CHICAGO TRIBUNE]
- This CEO Makes 900 Times More Than His Typical Employee [TIME]
If you are interested in digging into the topic even further, check out As You Sow's 2018 report, The 100 Most Overpaid CEOs.
As always, hit reply and let me know your thoughts on or questions about any of this!
P.S. There's an awesome Planet Money episode about the Dodd-Frank act that makes the legislation, and the post-election politics around it, very interesting!
I'm a sucker for a good April Fools joke! Check out this comprehensive list of corporate pranks captured by the WSJ. Many are pretty wack, but these made me chuckle:
Which one is your favorite?
↳ My favorites from the past week:
- "I’m a female chef. Here’s how my restaurant dealt with harassment from customers." This op-ed is written by a self-identified "overtly feminist restaurateur" who highlights how she combatted harassment in her own establishment. They ended up developing a system that labeled customer behavior on a color-coded scale of yellow, orange or red, with red resulting in the customer being asked to leave. // WASHINGTON POST
- "The plastics crisis is more urgent than you know. Recycling bottles won’t fix it." If you haven't read anything about the growing crisis of plastics, read this. It's in our packaging, cars, computers, clothes, even our drinking water. There's no amount of recycling that will eliminate the harm it's doing to the planet. We urgently need new solutions, including behavior change (reusable bags, no more plastic straws, and more). // GUARDIAN
- "Is Women-Only Club the Wing Discriminating in a Bad Way?" I am so fascinated by the rise and success of the Wing. This coworking space, which does not allow men in even as guests, is currently being investigated by the New York City Commission on Human Rights for "possible discrimination violations." I'm eager to see how this story unfolds. What do you think about it? // NYTIMES
↳ A quick rundown of headlines you may have missed:
- Equifax has a new CEO, and he's a former private equity executive. His salary? $17 million to start. [NYTIMES]
- There's been a 31% increase in diversity and inclusion job postings since 45 was elected. [QUARTZ]
- Apple's CEO Tim Cook has a lot to say about Facebook. [FORTUNE]
- Female employees at Nike distributed a survey to capture concerns about pay disparity, gender imbalance and inappropriate behavior. [WSJ] *paywall*
- At the time of writing this, Under Armour was the latest company to report a data breach, with 150 million users of their app MyFitnessPal affected. [VERGE]
- Now, it turns out that Saks Fifth Avenue and Lord & Taylor department stores are the latest, with five million credit and debit card numbers stolen for sale on the dark web. [CNBC]
- This month's Vanity Fair is highlighting the 26 women of color who have raised $1 million or more for their tech startup. #badass
"I don't think companies are as worried about newspaper articles, because they are what they are, and I don't think they're worried about shareholders. I think they're worried about how their own people will react. How do you communicate to an employee who now knows they're paid in the bottom half of the company?"
- David Wise, senior client partner at Korn Ferry
Did you miss last week's issue?
[Issue 053] How companies supported #MarchforOurLives
Youth stood up around the world to demand an end to mass shootings. These are the companies that stood with them. Read More →