CEO-worker pay gaps make no sense for Wall Street banks

The Pak Banker - - FRONT PAGE -

The US Se­cu­ri­ties and Ex­change Com­mis­sion this week adopted a new rule re­quir­ing public com­pa­nies to dis­close how much money CEOs earn in com­par­i­son to typ­i­cal em­ploy­ees. Part of the Dodd-Frank fi­nan­cial re­form act, the rule has been ap­plauded by many. The Times said the re­quire­ment could help share­hold­ers make de­ci­sions on com­pany per­for­mance based on things like morale and turnover.

But when it comes to Wall Street firms - which the rule was pre­sum­ably de­signed for, since Dodd-Frank is a Wall Street re­form law - it may not show a great deal. The pay gap rule has al­ready re­ceived crit­i­cism for a num­ber of rea­sons. For ex­am­ple, it re­quires com­pa­nies to com­pare chief ex­ec­u­tive pay with the me­dian em­ployee com­pen­sa­tion, rather than the mean.

Com­pa­nies will be al­lowed to choose their own method­ol­ogy for iden­ti­fy­ing the me­dian em­ployee, in­clud­ing us­ing sam­ples of the em­ployee pop­u­la­tion rather than the full body. The con­cern, as voiced by For­tune's S. Ku­mar, is that com­pa­nies could throw in a few higher-paid em­ploy­ees and ex­clude some lower-level work­ers when cal­cu­lat­ing the me­dian. That would ul­ti­mately re­duce the wage gap.

But even if the SEC had re­quired com­pa­nies to take the av­er­age pay of all em­ploy­ees, it would still be hard to glean any­thing from the re­sults - es­pe­cially for Wall Street firms with siz­able in­vest­ment bank­ing arms.

We cal­cu­lated the pay gaps for six of the big­gest banks, based on av­er­age em­ployee pay. To do that, we looked at 2014 CEO com­pen­sa­tion data from proxy state­ments, to­tal em­ployee com­pen­sa­tion in 2014 from bal­ance sheets in quar­terly and an­nual re­ports, and the to­tal num­ber of em­ploy­ees at each bank.

Here's what those pay ra­tios look like:

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