Median Employee Pay Not Quite the Spectacle Anticipated

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2018-04-17

Posted by Deb Lifshey, Pearl Meyer & Partners, LLC, on Tuesday, April 17, 2018
Editor's Note: Deb Lifshey is Managing Director at Pearl Meyer & Partners, LLC. This post is based on a Pearl Meyer publication by Ms. Lifshey.

…Yet May Still Spark Employee Relations and Media Fires

Congress—in the aftermath of the financial crisis in 2010—enacted a law requiring public companies to identify the compensation of their median-paid employee, compare that to the CEO as a ratio, and disclose it each year. As noted by the SEC in enacting rules to implement the legislation, Congress provided no rationale for the rule, although presumably it was intended to highlight perceived inequities between executive and average worker pay. Even more importantly, it required companies to disclose for the first time, not what executives were making, but what the median worker was paid. Fast forward eight years and we are left questioning whether the legislation is actually accomplishing its supposed intent. Based on our review of 500 proxies (as of March 30, 2018) tracked on our CEO Pay Ratio page, we think the answer is a resounding no, although it will have the unintended consequences of meddling with employee relations and keeping the media busy for a while.