[Issue 101] How much should CEOs be paid?
Happy Thursday!
Another week, another topic to nerd out about in your inbox.
This week I want to revisit the topic of CEO pay. You might recall back in 2018 (Issue #054) when we talked about the Pay Ratio Disclosure Rule, which was being implemented by many companies around that time.
The rule requires companies to disclose the ratio of the median of the annual total compensation of all employees to the CEO's. It was thought that the transparency would help reign in the growing divide.
Earlier this year Bloomberg analyzed pay ratios at the largest public companies in the U.S. and found that not only are CEO pay ratios extraordinarily high, but hundreds of companies pay their median employees less than a living wage.
And sadly, it doesn't appear to be getting better—at least not yet.
According to the latest research:
Nearly 80% of S&P companies paid their CEO 100x their median worker in 2018.
49 of the 500 largest publicly traded companies pay their median worker below the poverty line for a family of 4 (which is still not even a living wage IMO).
At the 50 companies with the widest pay gaps in 2018, the typical employee would have to work at least 1,000 years to earn what their CEO made in just one.
Since it appears that pay disclosures haven't impacted shareholder approval of executive compensation (yet... I'm an optimist after all), the next source of power would be regulation.
The research report I mentioned above included a really comprehensive set of recommendations.
Here are a few I like:
Raise tax rate on firms with wide gaps. Portland, Oregon is the first jurisdiction to pass legislation on this! Any company with a ratio over 100x owe an extra 10% in taxes and companies with more than 250x pay an extra 25%.
Disclosure of executive versus worker raises, which should be tied together don't you think?
Limit tax deductions for executive pay, which I cannot even believe is a thing.
Limit stock buybacks, as it is a driver of inequality. This is also a deeper conversation for a future issue of the newsletter.
Require gender and racial pay gap disclosures, which will help with data to address income inequality.
You can check out the full list here (starting on page 12).
Which ideas resonate with you? What would you add? Hit reply and let me know what you think will make a difference.
Until next week,
Nikita
P.S. If you work at a publicly traded company and want to see where it falls in this discussion, check out Bloomberg's interactive chart.
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This week's headlines were curated by ABL's intern, Lora, with GIFs from yours truly.
"Jesus Christ himself isn't worth 500 times his median worker pay in companies."
- Abigail Disney
Granddaughter of Roy Disney, co-founder of The Walt Disney Co. (whose CEO is paid 1,424x the median worker)