- In a letter to the Securities and Exchange Commission, Willis Towers Watson (WTW) recommended a 6-point plan to simplify the method for calculating CEO-to-worker pay ratios. The SEC issued guidance last year on calculating the difference between CEO and employee compensation under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
- Three WTW recommendations call for calculating CEO-to-pay ratios by narrowing the definition of “employee” and “employee of the registrant,” using the previous year’s data to identify employees and allowing companies to use base pay as a consistently applied compensation measure (CACM).
- Section 953(b) proposes calculating the total median annual compensation of all employees except the CEO, the CEO’s total annual compensation and the ratio of the two amounts.
So far, Pres. Donald Trump and Republican lawmakers haven’t focused on repealing or amending Dodd-Frank, as they had been focused on the Affordable Care Act. Therefore, companies must continue complying with the law and fulfilling SEC requirements.
Pay-ratio disclosure rules followed public outrage over the extreme gaps in compensation between CEOs of major U.S. corporations and the median salaries of workers. Glassdoor research found that U.S. CEOs earn 204 times the median pay of workers. Various studies disagree over whether CEOs with massive compensation in comparison to workers have lower approval ratings.
That kind of distance isn't standard for all companies. Japanese CEOs earn one-sixth of what U.S. company heads earn and 16 times the median wage of Japanese workers. Japan’s security and exchange authority requires salary disclosures for executives earning more than one million yen annually, or $1.1 million in U.S. currency.