In the United States the Securities and Exchange Commission (SEC) have unveiled their plan to force organizations to reveal the salaries of their chief executives amid public protest at their levels of remuneration. The plan compels companies to disclose the total compensation of the top executive in addition to the median of all other employees and the ratio between the two. The measures are part of the Dodd-Frank Act, which the SEC describe as ‘a foundation for a framework that will support an entirely new regulatory regime designed to bring greater transparency.’
Executive pay has been a controversial issue since the global financial crisis, with particular focus on the banking sector. With the announcement of these new proposals it is hoped that reward specialists and remuneration committees will moderate the pay of their top earners in the face of hostile public opinion. A statement on the AFL CIO website concerning executive pay claims that ‘our economic system has become so rigged that no matter what happens, the rich keep getting richer and working families continue paying for it in the form of slashed jobs, wages, health benefits and retirement.’ Statistics produced by the University of California state that, in the two years between 2009 and 2011, incomes for the bottom 99% of American households fell 0.4%, while the incomes of the remaining and most affluent 1% increased by 11.2%. The SEC claims that the new regulations will give investors a ‘say-on-pay’ regarding executive compensation.
This comes only a few months after the EU government confirmed that new European legislation capping executive bonuses in the banking sector to twice their regular salary and subject to the approval of their shareholders would come into force in 2014, whilst ‘say-on-pay’ shareholder votes have been used in Canada for the last four years. Around the world executive pay remains a hot button issue, with many believing that excessive payments for top executives are a symptom of a toxic culture that was a contributing factor to the global financial meltdown.
In recent years reward strategy has become a conflict within organizations between the desire to ensure that they are attracting top talent for their executive roles by paying market rates whilst maintaining a structure that is seen to be equitable internally. By forcing companies to declare the ratio between the pay of the chief executive and that of the median employee, the SEC are attempting to ensure the latter, whilst corporate lobbyists insist that this will hinder the former.