Secret bosses' business
Three years after the US told public companies to reveal executive-worker wage ratios, staff and shareholders are still in the dark
Bloomberg in Washington
Former fashion jewellery saleswoman Rebecca Gonzales and former chief executive Ron Johnson have one thing in common: JC Penney no longer employs either.
The similarity ends there. Johnson got a compensation package worth 1,795 times the average wage and benefits of a department store worker in the United States when he was hired in November 2011, data shows Gonzales' hourly wage was US$8.30 that year.
Across the Standard & Poor's 500 Index of companies, the average multiple of chief executives' compensation to that of rank-and-file workers is 204, up 20 per cent since 2009, data shows. The numbers are based on industry-specific estimates for worker compensation.
Almost three years after the US Congress ordered public companies to reveal actual chief executive-worker pay ratios, the numbers remain unknown. As the Occupy Wall Street movement and last year's election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which has not yet drawn up the rules to implement it. Some of America's biggest companies are lobbying against the requirement.
"It's a simple piece of information shareholders ought to have," said Phil Angelides, who led the Financial Crisis Inquiry Commission, which investigated the economic collapse of 2008. "The fact that corporate executives wouldn't want to display the number speaks volumes."
The lobbying was part of "a street-by-street, block-by-block fight waged by large corporations and their Wall Street colleagues" to obstruct the law, he said. The leading opponent of mandatory pay-ratio disclosure is the non-profit HR Policy Association, which represents top human resources executives at 335 large corporations.
"We don't believe the information would be material to investors," said Tim Bartl, the president of the group's advocacy arm, the Centre on Executive Compensation.
Accounting for country-to-country differences in wages and benefits at global companies would be costly, time-consuming and all but impossible, he said.
The group has brand names behind it: 17 companies on HR Policy's board of directors have chief executive pay ratios in the top 20 per cent of S&P 500 companies. They include General Electric, with a ratio of 491; McDonald's, at 351; and AT&T, at 339.
These multiples are based on chief executive pay for either the fiscal year ending in 2011 or 2012, as disclosed in the companies' most recent filings on March 26.
Because most companies do not disclose their average workers' pay, Bloomberg used government data on worker compensation by industry. The average ratio for the S&P 500 companies is up from 170 in 2009, when the financial crisis reduced many compensation packages. Estimates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000.
"When [chief executives] switched from asking the question of 'how much is enough' to 'how much can I get', investor capital and executive talent started scrapping like hyenas for every morsel," said Roger Martin, dean of the University of Toronto's Rotman School of Management. "It's not that either hates labour, or wants to crush their lives. They just don't care." Johnson had the highest pay multiple, based on US$53.3 million in compensation reported in JC Penney's 2012 proxy. The former retailing executive at Apple took the top job after agreeing to walk away from unvested Apple shares valued at about US$80 million.
"The money I earned at Penney's in 2012 was entirely to replace money earned at Apple," Johnson said. "If Penney's had waited until April 2012, they wouldn't have had to pay me a penny. The board wanted me to start sooner."
Comparing his earnings to the US$29,688 average compensation for a department store worker is the equivalent of stacking the length of a loaf of bread - give or take a few slices - against the height of the Empire State Building.
Johnson, who says he resigned, was replaced on April 8 after less than 18 months on the job. Six days earlier, the company filed its 2013 proxy reporting his most recent annual compensation as US$1.9 million, with no bonus, stock, options or incentive pay. The company declined to comment.
Gonzales last worked as a cashier at a store before her employment was terminated. She had been unable to work after suffering an injury in a fall.