While a provision of Dodd-Frank requires public firms to disclose executive pay to workers’ pay as part of an effort to protect shareholders, investors may have little interest in the provision.
The SEC has yet to write the regulations pertaining to the disclosures, but Commissioner Luis Aguilar sent a letter last week to Timothy Bartl, the president of the Center on Executive Compensation, saying that companies would benefit from disclosing pay ratios before the rules are written, CFO reports.
“The ratio between CEO compensation and median pay can create risks to an enterprise, including the risk of employee, customer and shareholder discontent,” Aguilar said, according to CFO. “Companies should consider whether additional disclosure is necessary to enable stockholders to asses such risks.”
Bartl said, however, that the pay ratio does not reflect differences in risk but differences in markets.
“The pay ratio is the result of a company’s size and global reach, competitive and geographic market forces, the industry in which a company operates, the mix of jobs within a company and other factors,” Bartl said, CFO reports.
Though shareholders do tend to take interest in pay for performance, there is little evidence to suggest that pay ratio disclosure is an issue for investors. In 2010, the average level of shareholder support for pay ratio disclosures was 6.4 percent, and there have been few similar measures proposed since then.
The Center on Executive Compensation, however, has not called for the rollback of current disclosures.
“There are best practices for clear and concise executive summaries that give investors a clear road map as to a company’s pay programs, and well-laid-out detail behind that,” Bartl said, according to CFO. “At the end of the day, companies need to tell their pay stories clearly to investors.”