As we approach the end of 2018, it’s only natural to look back on some of the year’s events – and some non-events. For my money, one of the most significant non-events was the inauguration of CEO pay ratio disclosure, one of the evil spawn of Dodd-Frank.
In the interest of brevity, I’ll skip the background of the disclosure requirement, except to say that it seemed intended to shame CEOs – or, more accurately, their boards – into at least slowing the rate of growth in CEO pay. Some idealists may have actually thought that it would lead to reductions in CEO pay. Poor things; they failed to realize not only that all legislative and regulatory attempts to reduce CEO pay have failed, but also that such attempts have in every single instance been followed by increases in CEO pay.
So the 2018 proxy season, and with it pay ratio disclosures, came and went. Sure, there were media outcries about some of the ratios, but they failed to generate any traction. Companies may have incurred significant monetary and other costs to develop the data needed to prepare the disclosures, but their concerns about peasants storming the corporate gates with torches and pitchforks proved needless. Few, if any, investors – and certainly no mainstream investors – seemed to care about the pay ratios. Employees making less than the “median” employee didn’t rise up in anger. Even the proxy advisory firms seemed to yawn in unison.
So that’s that. Or so you’d think.
However, in November, a group of nearly 50 institutional investors signed a letter, reportedly sent to the boards of every single Fortune 500 company, saying that the pay ratio disclosures are not enough. Actually, it was phrased far more solicitously; the investors say they’d “identified what we believe to be best practices that we would like share with you.” (How generous of them!) The “best practices” consist of “supplemental information about [the company’s] workforce to provide context and explain [the] company’s pay ratio data,” and the letter states that the signers “believe this supplemental information is helpful to investors.” It seems odd to refer to these additional disclosures as “best practices,” because one of the interesting things about the 2018 disclosures is that very few companies disclosed anything that wasn’t explicitly required by the rules — in other words, there were very few additional disclosure practices at all, much less “best” ones. (The letter states that companies have disclosed the items in question “to varying degrees”, but I have no idea what that means).
So what types of disclosure are now being sought? Here’s a partial list:
- Identification of the median employee’s job function;
- Breakdown of the workforce by job function and/or business unit;
- Location of the median employee;
- Country-level breakdown of global employee headcount;
- Breakdown of full-time vs. part-time employees;
- Use of temporary or seasonal employees;
- Use (or non-use) of subcontracted workers; and
- alignment of CEO pay practices with pay practices for other employees.
OK, I admit that the last one seems relevant. But IMHO it’s the only relevant item.
Viewing (or trying to view) the 2018 crop of pay ratio disclosures from the perspective of people who support the disclosures, I can understand their disappointment. After all, the final rules pretty much left it up to each company what to say, and eliminated any comparability of disclosures even within one industry, let alone across multiple industries. But it doesn’t take too much imagination to envision the requested information adding multiple pages to a proxy statement that is already cluttered and difficult to navigate.
I’m not saying that less is more, but sometimes it should be enough. And, by the way, the photo at the top of this posting is what proxy statements are going to look like pretty soon if some people have their way.