Days after a blistering attack from an angry lawmaker, the Securities and Exchange Commission released an analysis Thursday of the complexities in calculating the ratio of CEO pay to worker earnings.
The 2010 revamp of financial regulation required that publicly traded companies publish the ratio as a disincentive to excessive CEO compensation. Critics argued back then that excessive CEO pay rewarded the Wall Street risk taking that brought about the 2008 financial crisis.
Roughly four years later, the rule requiring the published ratio has yet to be finalized. The delay led Massachusetts Democratic Sen. Elizabeth Warren to write a 13-page letter Tuesday to SEC Chair Mary Jo White, calling the chair’s tenure “extremely disappointing.” Among complaints from Warren was the long delay in rules to publish CEO pay ratios.
The SEC published on Thursday a new analysis and asked interested parties to provide comment by July 6 as it prepares to publish new rules, a process that began in September 2013.
“The staff believes that the analysis will be informative for evaluating the potential effects on the accuracy of the pay ratio calculation of excluding different percentages of certain categories of employees, such as employees in foreign countries, part-time, seasonal, or temporary employees as suggested by commenters,” the SEC said in a statement.
The 2010 law requires companies that offer shares of stock to the public to disclose the median, or midpoint, of annual total compensation for employees of the issuer. They must also disclose the annual total compensation of the CEO, and the ratio of the midpoint salary of company workers to the CEO’s total compensation.
The law was not entirely clear, however, on how to handle some important calculations, including how to count pay and benefits that vary widely between U.S. and foreign operations. Thursday’s analysis offers several hypothetical calculations involving different percentages of company employees excluded. The analysis implies that some percentage of employees may eventually be excluded given the difficulty in factoring in part-time workers, foreign workers and other factors.
Bloomberg Business took a crack at the calculation in May 2013, telling its readers that most other attempts hadn’t calculated pay industry-by-industry but instead looked at government data that estimated pay of all U.S. workers.
When including benefits and industry-specific worker pay, Bloomberg calculated that the average CEO compensation for a company listed on the S&P 500 was 204 times that of the midpoint pay of its workers.