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CEO salaries to be listed as a ratio of workers’ pay, but will it help?

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In the past week, the US Securities and Exchange Commission adopted the regulation requiring listed companies to make the salary and median income of the CEO public information as a ratio to their workers’ median pay, giving them time till 2017 to comply.

It is hoped that the new policy will allow the public to put pressure on corporations that are currently overpaying their CEOs.

Income inequality is a global challenge, especially in Hong Kong which had the highest level of income inequality in the developed world (with a Gini coefficient of 0.537) in 2012, as measured by the Census and Statistics Department, a number that is only going up since.

Top management in some companies has already voiced out its displeasure over the regulation, saying that producing such reports will increase their administration cost. Some have said this is a name-and-shame tactic for putting CEOs under the microscope.

ALSO READ: The world’s most generous bosses

But the truth is CEOs are making way too much money, with much research to prove that CEOs are indeed getting paid a lot more than the average Joe.

A report this May by The American Federation of Labor revealed that the salary of CEOs from Standard & Poor’s 500 index companies has ballooned 373 times since 1980, during which time the salary of an average employee has only increased 42 times.

Another study released this year by Peterson Institute for International Economics in America showed that between 1978 to 2013, the average American employee’s pay rose by 10.2%, while CEOs enjoyed raises of a whopping 937%.

Management theorist Peter Drucker once suggested a CEO’s salary should not be more than 20 times of their staff are making because an income gap too big will affect the morale of employees.

But looking at today’s situation, CEOs are being paid hundreds or even thousands more times than the average employee.

ALSO READ: Senior managers earn more than 11 times their junior staff

It is not just the Americans who have realised the importance of closing the income gap. In Europe, many countries now require more than half of the board members to agree to the salary for top management, as a way to discourage companies from offering outrageous pay raises.

In Switzerland, leftist political parties had proposed a law to limit a CEO’s salary to no more than 12 times of the lowest paid worker in 2013 but it was not passed.

Whether it is through administrative measures or public pressure, the world would be a better place with fair wealth distribution.

Image: Shutterstock



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