This week, the Chamber of Commerce released a report claiming that a new requirement under the 2010 Dodd-Frank financial reform bill that corporations calculate and disclose the ratio of CEO pay to an average worker’s pay is “egregious.”
The report notes that the Securities and Exchange Commission, which has to issue the regulation, estimated that the new rule would require an average of just 190 extra hours of paperwork each year per company, costing an extra $18,000.
But the Chamber contends that different data that it gathered from surveying 118 companies, or 3.1 percent of covered businesses, show the costs would be higher. The companies said it would take an average of 952 hours each year to comply, costing them $185,600. Yet it also says that 13 companies reported it would cost them less than $10,000 and “a few” said it would cost almost nothing. The discrepancy, it says, is that large multinational companies may have many different payroll systems and therefore will take them longer to calculate what everyone is paid.
But these costs don’t have to be nearly so high. As Bartlett Naylor, financial policy advocate at Public Citizen, points out, the proposed rule would permit statistical sampling, which wouldn’t require corporations to collect all compensation data for every worker across the company. “The Chamber’s own data reveal that some companies can complete the calculation for $10,000, which is already an exaggeration,” he says in a press release. “A well-managed company should already know how much its employees make.”
Either way, to claim egregious costs in the current climate is to ignore the health of corporate profits. They have not just rebounded from the recession: between 2009 and 2011, 88 percent of national income growth went to corporate profits. But they have continued to climb to new highs. After-tax profits for American companies hit a record high in 2013, reaching $1.68 trillion. They also hit a record as a share of total income. They are now making more as a percentage of the economy than they have since records have been kept.
The Chamber also argues that the CEO-to-worker ratio disclosure has “no discernible benefits for investors, businesses, or the broader economy” and that it “will not provide additional insight whether pay appropriately reflects the performance of executives or the condition and circumstances of the businesses they manage.”
Indeed, it may not say definitively whether a CEO is overpaid. But it could indicate whether workers are underpaid for the work they do. The Chamber notes that there is an effort to tie CEO pay to company performance. But workers themselves aren’t benefitting from company performance. Soaring corporate profits have boosted CEO pay: top executive compensation hit a record high in 2012 and increased 4.1 percent at the median last year. Even high profits may not entirely explain these increases, however: Performance pay can be rigged so that executives get bonuses even if they miss expectations.
Workers, for their part, have been consistently increasing their productivity, which is helping to fuel those corporate profits. But they’re not reaping the rewards. Workers increased their productivity last summer at the fastest pace since 2009, and for the last decade it’s steadily climbed, increasing 8 percent between 2007 and 2012. Wages haven’t been nearly as healthy, though. They have been stagnant or falling for a decade. They are currently growing at just 2 percent a year, barely outpacing inflation, which is the slowest rate since 1965.
The ratio between worker pay and CEO pay gives us a sense of this disconnect. For 30 years, CEO pay has increased 127 times faster than worker pay. In 2012, that meant the overall ratio of CEO-to-worker compensation was about 273 to 1. In the particularly low paying fast food sector, CEOs make about 1,200 times what their workers make. While executive pay can be gamed to increase even in times of poor performance, workers’ increased performance hasn’t netted them many raises.