Ceo-worker pay disparities widen as SEC delays compensation
WASHINGTON: Former fashion jewellery saleswoman Rebecca Gonzales and former Chief Executive Officer Ron Johnson have one thing in common: J.C. Penney Co. no longer employs either.
The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a US department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’ hourly wage was US$ 8.30 that year.
Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rankand-file workers is 204, up 20 per cent since 2009, the data show. The numbers are based on industry- specific estimates for worker compensation.
Almost three years after Congress ordered public companies to reveal actual CEOto-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.
“It’s a simple piece of information shareholders ought to have,” said Phil Angelides, who led the Financial Crisis Inquiry Commission, which investigated the economic
Executive pay at some companies is excessive and leads to a number of risks, in particular the risk of damage to the company’s social licence to operate and the risk of worsening employee morale. Tim Macready, chief investment officer of the Christian Super pension fund in Australia
collapse of 2008. “The fact that corporate executives wouldn’t want to display the number speaks volumes.” The lobbying is part of “a street-by- street, blockby-block fight waged by large corporations and their Wall Street colleagues” to obstruct the Dodd-Frank law, he said.
The leading opponent of mandatory pay-ratio disclosure is a Washington-based non-profit called the HR Policy Association, which represents top human resources executives at about 335 large corporations. “We don’t believe the information would be material to investors,” said Tim Bartl, president of the group’s advocacy arm, the Centre on Executive Compensation. Accounting for country-tocountry differences in wages and benefits at global companies would be costly, time- consuming and all but impossible, he said in an interview.
The group has brand names behind it: 17 companies on HR Policy’s board of directors have CEO pay ratios in the top 20 per cent of S& P 500 corporations, Bloomberg data show. They include General Electric, with a ratio of 491; McDonald’s, at 351; and AT&T , at 339.
These multiples are based on CEO pay for either the fiscal year ending in 2011 or 2012, as disclosed in the companies’ most recent filings before noon on Mar 26. Because most companies don’t disclose their average workers’ pay, Bloomberg used US government data on worker compensation by industry. The average ratio for the S& P 500 companies is up from 170 in 2009, when the financial crisis reduced many compensation packages. Estimates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120to-1 by 2000.
“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” said Roger Martin, dean of the University of Toronto’s Rotman School of Management, in an interview. “It’s not that either hates labour, or wants to crush their lives. They just don’t care.”
J.C. Penney’s Johnson, who was replaced on Apr 8 after less than 18 months on the job, had the highest pay multiple, based on US$ 53.3 million in compensation reported in the company’s 2012 proxy. The former retailing executive at Apple took the top job after agreeing to walk away from unvested Apple shares valued at about US$ 80 million ( RM240 million).
“The money I earned at Penney’s in 2012 was entirely to replace money earned at Apple,” Johnson said in a telephone interview. “If Penney’s had waited until April 2012, they wouldn’t have had to pay me a penny. The board wanted me to start sooner.”
Comparing his earnings to the US$ 29,688 average compensation for a department store worker is the equivalent of stacking the length of a loaf of bread — give or take a few slices — against the height of the Empire State Building.
Johnson, who says he resigned, was replaced on Apr 8 after less than 18 months on the job. Six days earlier, the Plano, Texasbased chain filed its 2013 proxy reporting his most recent annual compensation as US$ 1.9 million, with no bonus, stock, options or incentive pay. The company declined to comment, said Joey Thomas, a spokesman.
Pay-ratio supporters, led by activist investors and trade unions including the AFL- CIO and the US$ 52.4 billion United Auto Workers Retiree Medical Benefits Trust, say mandatory disclosure would help inform shareholders on advisory say- onpay votes at companies’ annual meetings. “Executive pay at some companies is excessive and leads to a number of risks, in particular the risk of damage to the company’s social licence to operate and the risk of worsening employee morale,” said Tim Macready, chief investment officer of the Christian Super pension fund in Australia, which has about US$ 700 million under management. The pay ratio is a “useful metric in identifying and dealing with both of these risks.”
Abercrombie & Fitch Co., the clothing retailer, and Simon Property Group Inc., the real estate investment trust that owns and manages shopping malls, had the second- and thirdhighest ratios. Ninety per cent or more of the CEO compensation at each company was in stock or option awards that vest over time — in Simon’s case, eight years — yet are required to be reported in the year granted. If such multiyear awards were reported in the years they vested, the ratios would drop.
Both companies lost sayonvotes last year, getting 24 per cent and 26 per cent of voting shareholders’ support respectively, according to proxy solicitor Georgeson Inc. Typically, more than 90 per cent of voting shareholders back the non-binding resolutions at S& P 500 corporations.
Abercrombie CEO Michael Jeffries got US$ 48.1 million, according to the New Albany, Ohio-based company’s 2012 proxy. That’s 1,640 times the average clothing- store worker’s US$ 29,310 in pay and benefits. Jeffries’ stock- appreciation rights — valued at US$ 43.2 million in the proxy — had no realisable value as of Apr 25 because the share price fell. — WP-Bloomberg