Providing Context for Executive Compensation Decisions
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-09-30
Today [September 18, 2013], the Commission takes an important step to comply with the Dodd-Frank Act’s requirements for better disclosure and accountability regarding executive compensation decisions at public companies. 
As required by Section 953(b) of the Dodd-Frank Act, the Commission is proposing a rule to provide for disclosure of CEO-to-worker pay multiples. Reports show that these pay multiples have risen steadily over the years. For example, an April 2013 study by Bloomberg finds that large public company CEOs were paid an average of 204 times the compensation of rank-and-file workers in their industries. By comparison, it is estimated that the average CEO was paid about 20 times the typical worker’s pay in the 1950s, with that multiple rising to 42-to-1 in 1980, and to 120-to-1 in 2000. 
Given this backdrop, it is not surprising that investors are asking if such a high level of CEO-pay multiples is in the interest of corporations and their shareholders.  As owners of public companies, shareholders have the right to know whether CEO pay multiples reflect CEO performance. Shareholders have the right to know how their company’s internal pay comparisons may impact employee morale, productivity, hiring, labor relations, succession planning, growth, and incentives for risk-taking.