CEO to worker pay ratio disclosure – some of the consequences if the idea gets traction

Some of the media discussion stemming from the release of the Australia Post’s executive pay has suggested additional ASX listed company regulation for the disclosure of the ratio of CEO pay to employee median or average pay. This was suggested and rejected in the UK’s 2010 review, was legislated by the US Dodd Frank bill (see HERE), surfaced again in Therese May’s remarks on her appointment as UK Prime Minister (see HERE), and downplayed by her government’s white paper (see HERE).

Please be careful what you wish for.

The US regulation requiring pay ratio disclosure has contributed to what some may say are counter productive consequences. Foremost among these are plans by some cities to levy a punitive tax on companies headquartered within their city boundaries if the ratio is too high.

San Francisco and Rhode Island are also aiming business tax surcharges at companies with chief executive officers whose compensation is 100 times greater than their median worker’s pay.

The legislation builds on the country’s first such law, in Portland, Oregon, passed late in 2016. The surcharge, which Portland officials said is the first in the nation linked to chief executives’ pay, would be added to the city’s business tax for those companies that exceed the pay threshold. Currently, roughly 550 companies that generate significant income on sales in Portland pay the business tax.

Under the new rule, companies must pay an additional 10% in taxes if their pay ratio exceeds the stated 100 times median pay limit. Companies with pay ratios greater than 250 times the median will face a 25% surcharge.

While companies such as San Francisco’s Twitter Inc., Inc., Zynga Inc. and Gap Inc., among many others, have not yet announced plans to decamp the city and head for a relatively safe place, like New Zealand, it seems US President Trump may inadvertently assist some of his most vocal non-supporters.

On February 6 the Washington Post reported that Michael Piwowar, the SEC’s acting chair, said it is now time to reconsider because: “Some [companies] have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline,” he stated. “I have also directed the staff to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

So, if the UK PM backtracks, and the US federal regulators with the President’s backing unwind their pay ratio regulation, there may be less heed paid to the idea in Australia. One can hope.

© Guerdon Associates 2024
read more Back to all articles