10 Ways to Calculate Pay Disparity (Since the SEC said you can)
It’s official. The SEC has followed through with pay disparity disclosures.
This is one of those rules that bureaucrats picked up from the media and turned it into a law, without any real thought as to the cost of calculating this number versus the value it provides investors.
In short, disclosing the CEO’s pay to the median employee’s pay will provide no new clarity of the top executive’s total compensation, rather it will just create more media fuel.
If the thought is that CEO pay should be established by internal indexing to the median or lowest paid employee, the rule makers should go back and review the success of Ben & Jerry’s experiment with pay caps.
This is not a shot at Ben & Jerry’s, as they have done their part to create a sustainable and replicable model that helps the environment they operate in, but they pay cap idea of 5:1 they started in 1990 didn’t work.
They had to eliminate the program to attract a new CEO once the founders retired.
Since this is seemingly an important ratio to disclose to the public, why don’t we take other comparative looks. Below are a few other pay comparisons that would be fun reading.
10 ways to calculate pay disparity (since the SEC said you can):
10. Compare CEO pay against the median employee pay who has 75% of their pay at risk.
9. Compare CEO pay to the highest paid athlete or celebrity of the town the CEO lives in.
8. Compare CEO pay against the median exempt employee and then compare that ratio to the highest paid sports player vs the average ticket sales rep.
7. Compare CEO pay against the interest we pay to service US debt.
6. Compare CEO pay against the average dollars raised by a senator’s campaign (approximately $10mm).
5. Compare CEO pay to all the money CEOs and their companies put into their communities.
4. Compare CEO pay against the total market value created for shareholders in the same time frame.
3. Compare CEO pay against the pay of the star actor of the worst performing movie of the last year.
2. Compare CEO pay against the perks of the US president in the same year.
1. Compare CEO pay against the President’s pay the first year after being out of office (estimated to be approximately $50mm).
written by Chris Crawford