For the first time, public companies are now required to disclose their companies' pay ratios between the CEOs and median employees. This pay ratio data is important because it shows which companies are investing in their workforce to create high-wage jobs. It also indicates which companies pay their CEOs reasonably relative to other employees.
Companies with high CEO-to-worker pay ratios may suffer from a winner-take-all philosophy where the CEOs reap the lion’s share of compensation. Employee productivity, teamwork and collaboration suffer when workers see that their CEO’s pay is going up at the same time that they are asked to do more with less.
Pay ratio disclosure will allow investors to cast more thoughtful votes on executive pay. Investors can now see how their companies’ pay ratios and median employee pay compares to their industry peers. As these pay ratios change over time, investors can monitor these changes to help guide their investment decisions.
Pay Ratios of S&P 500 Companies by Industry
Big corporations have rigged the rules of our economy by passing a trillion-dollar corporate tax cut that rewards companies for offshoring jobs. The new tax law slashes the corporate tax rate from 35% to just 21%. It also reduces corporate taxes on overseas earnings and creates incentives to move real assets offshore.
CEOs are responding to the corporate tax cut windfall by buying back shares of stock rather than investing in their own company’s future growth and the creation of good jobs. According to a Wall Street Journal analysis, S&P 500 company stock buybacks in the first three months of 2018 more than doubled over the prior year.1
CEO Pay and Stock Buybacks
Rather than aggressive stock buybacks to boost short-term stock prices and CEO pay, companies should invest in their employees, who are their greatest asset. Pay ratio disclosure will help encourage companies to create high-wage jobs and pay their CEOs reasonable amounts.