Pearl Meyer on CEO Pay Ratios: Pay Transparency is the New Black
Pearl Meyer on CEO pay ratios. The leading advisor to boards and senior management released its 2018 Looking Ahead to Executive Pay Practices survey but long before that, in May 2015, one of their principals declared Pay Transparency is the New Black. I guess that means pay transparency will be the next thing in corporate governance fashion. Or maybe like the TV series Orange is the New Black, we will have a lot of laughs along as CEO pay ratios are disclosed but we have a sinking sense this will not end well.
Back in 2015 50% of employees thought they were not paid fairly. Pay Transparency is the New Black concludes, “without a baseline education across the workforce about how salaries, merit increases and incentives are determined… there is a real risk of heightened employee disengagement and erosion of trust in the employer,” once CEO pay ratios are disclosed. Better disclosure on base salaries, incentive plans and governance might calm employees. An underlying message is that Peal Meyer can help. Will better disclosure help settle the potential mob? The CEO Pay Machine: How it Trashes America and How to Stop it certainly makes CEO pay setting more transparent. However, I doubt companies will be passing that book out to placate employees.
Pearl Meyer on CEO Pay Ratios: Looking Ahead to Executive Pay Practices in 2018
The annual Looking Ahead to Executive Pay Practices survey is published by Pearl Meyer each fall with detailed information on how companies plan to adjust the base and incentive pay levels for their C-suite in the coming year, along with additional data on current trends and topics in executive compensation. An executive summary is publicly available and the full survey results are available for purchase.
The data from the most recent survey show that more than half of companies (58%) have completed a pro forma calculation of their CEO Pay Ratio, which will be a required disclosure in 2018 proxies. However, 73% of the public company directors and members of management surveyed have not had any board discussions on communicating the information. In a separate survey conducted in March of this year, 57% of respondents said the CEO Pay Ratio disclosure will have a negative effect on their workforce. Said Sharon Podstupka, who authored the earlier on the need for transparency,
While more companies are now completing their analysis, attention has to turn to messaging and how to mitigate any potential negative reactions. The CEO Pay Ratio disclosure casts a new spotlight on compensation and management must provide their boards with a summary of how the company will be prepared to address the concerns that may arise from multiple stakeholder groups.
I hope companies will do more than turn their attention to messaging. How about reexamining how CEOs and NEOs are paid? Why huge bonuses for just doing their jobs? Pay for performance assumptions need to questioned.
Pearl Meyer on CEO Pay Ratios: Additional Key Findings
- Just 13% of the directors surveyed indicate their board has talked about the required disclosure of the ratio for the Compensation Discussion & Analysis (CD&A) in their 2018 proxy statement.
- Only 11% say they have discussed both internal and external communication.
- Companies in technology and healthcare/pharma/biotech appear to be most prepared in their communication, with 44% in each industry reporting some level of board discussion.
- Forty-two percent of companies are projecting a CEO Pay Ratio between 101:1 and 250:1, while 18% expect a ratio of 251:1 or higher.
Additional Information From Pearl Meyer on CEO Pay Ratios
- Client Alert on the SEC’s newest CEO Pay Ratio Rule guidance, issued September 21, 2017
- Pearl Meyer’s Guide to navigating the CEO Pay Ratio calculation and disclosure process
- What HR Should Know about the CEO Pay Ratio and its effect on the workforce
Also of Interest
- CEO and Executive Compensation Practices: 2017 Edition (The Conference Board)
- Employers worry about worker reactions to new CEO pay ratio disclosures (HR Dive)
- CEO Pay: How Much Do CEOs Make Compared to Their Employees? (PayScale)
- The do’s and don’ts of CEO pay ratio communications (