How much more does the CEO make? You may find out
CEOs make a lot more than the average working Joe or Jane. And in the near future, Americans will find out how big the disparity actually is within publicly traded companies.
Federal regulators, under mandate from a 2010 law that reshaped regulation after the financial crisis, will require companies to reveal the extent of their own pay gaps.
The Securities and Exchange Commission is scheduled to vote Wednesday to formally adopt the rule, which will compel public companies to disclose the ratio between their chief executives' annual compensation and median employee pay.
Public reporting of the gap is unlikely to result in a rush to cut executives' pay packages or boost employee salaries. The numbers could pack a symbolic punch, though, and nudge company directors as watchdogs to push back on executives' excess, supporters of disclosure say.
The issue of executive compensation took on greater urgency in the wake of the 2008 financial crisis. Outsize pay packages — often tied to the company's stock price — were blamed for encouraging disastrous risk-taking and short-term gain at the expense of long-term performance.
Although a handful of U.S. companies currently disclose the ratio of CEO compensation to rank-and-file worker's pay, they don't calculate it the way the SEC is requiring, according to an analysis by the law firm Simpson Thacher & Bartlett.
It won't be known until the SEC acts how soon the new information would start showing up in companies' financial reports.
The vote at the public meeting is likely to split the five-member SEC along partisan lines, as it did when the rule was proposed in September 2013. The two Republican commissioners, Daniel Gallagher and Michael Piwowar, at the time called it a shaming exercise and political showmanship.
Business interests such as the U.S. Chamber of Commerce have lobbied against the requirement, saying it will be costly and time-consuming for companies to gather the information.
On the other side, investor advocates, shareholder groups and union pension funds have pushed for reporting of the CEO-employee pay gap. They say the gulf has widened about ten-fold since 1950. Moreover, fat pay packages for executives don't necessarily track with strong financial performance by the company, critics say.
During the nearly two years since the SEC first proposed the rule and sent it out for public comment, pay packages for CEOs grew for the fifth straight year in 2014. Median compensation for the heads of Standard & Poor’s 500 companies rose to a record $10.6 million.
Meanwhile, the average annual salary for U.S. employees was $47,230 in 2014, according to the Labor Department. The average salary differs from the median in the SEC's rule — the median is the salary point at which half the company's employees earn more and half earn less.
This story was originally published August 4, 2015 at 7:38 PM with the headline "How much more does the CEO make? You may find out."