The Securities and Exchange Commission has just approved a rule that would require companies to disclose the pay gap between their CEOs and their typical worker. In recent years, that pay gap has been in the spotlight, as Wall Street CEOs destroyed their banks, and the economy, in 2008 and walked away with millions in compensation anyway. Stagnant wages, a disappearing middle class, and the excuse that companies can’t afford to pay better wages, all while still giving their CEOs exorbitant compensation packages, have kept it there.
According to MSN, the SEC has been “working” on this rule for years, but has failed to actually finalize it. That failure has brought them into the sights of groups working to fight rising income inequality, and into the sights of Democrats who believe the rule is necessary to bring a measure of accountability to companies that consistently whine about the cost of labor eating up their profits, but still seem to have enough money for ridiculously outsized compensation for their CEOs.
One major problem is that CEO compensation is usually spelled out in a contract, which doesn’t define termination “with cause” the same way as it’s defined for the rest of us. According to a 2011 article in The New York Times, “cause,” in executive contracts, is often very narrowly defined, such as a felony conviction or complete neglect of their duties. For some reason, destroying the company doesn’t always count as neglecting their duties. As such, there’s little incentive for CEOs to actually improve the company at all. Some actually run their companies into the ground, get fired, and walk away with millions anyway.
The rest of us get fired and walk away with little to nothing when we fail that spectacularly.
Disclosing the gap between CEO pay and the pay a company’s average worker makes was supposed to be part of the 2010 Dodd-Frank financial reform bill. However, as is typical and expected, Republicans at the SEC haven’t wanted the rule to go into effect, claiming that it’s meant to embarrass CEOs, and isn’t useful to investors.
Democrats, and the SEC’s current chair, Mary Jo White, feel otherwise, and said so by voting to approve the rule. In a world where corporate law contains so many loopholes that companies can be as secretive as they want, while still obeying the law, things like this are necessary to bring a measure of accountability to how executives behave.
Since the rest of us have to actually earn our pay, and all the associated perks and bonuses, by performing well, it’s absolutely outrageous that CEOs aren’t held to the same standard (they actually ought to be held to a higher standard, because they run the damn companies). What’s more is the fact that what CEOs do affects more than just them. The livelihoods of thousands of workers, not to mention major segments of an industry, and even the U.S. economy, are at risk when they play fast and loose, and destroy their companies because their contracts make it so they don’t have to care. Therefore, they should be held to a higher standard.
This may also help to increase pressure on companies to pay their workers better, and hold their CEOs more accountable. Public pressure, when it becomes great enough, can be a powerful motivator. In this respect, too, the rule is a big win for American workers.