An SEC Rule on Global Pay Could Embarrass Companies

by Jesse Hamilton for Bloomberg Business Week, March 17th, 2011.

Some are fighting a plan requiring companies to report the ratio between executive and median employee pay, including wages of overseas workers

Every year an insurer called Protective Life (PL) crunches the numbers for its shareholders to show the cost of pensions promised to executives and derivative instruments used to hedge risk. The calculations are pretty complex. Yet when it comes to figuring out how the total compensation of its chief executive officer compares with the median pay of its employees, Protective wants to take a pass.

The Birmingham (Ala.) insurer is one of 18 businesses and industry groups urging the Securities and Exchange Commission to dial back a requirement to publish such a pay ratio under the new Dodd-Frank financial reform law. The rule requires U.S. publicly traded companies to determine what they pay each employee globally in salary, bonus, and benefits and then find the one whose pay falls at the exact midpoint to compare with the CEO’s compensation. By disclosing this ratio, advocates say, compensation would be more transparent and accountable to investors and employees.

Others see a logistical nightmare. “It’s difficult to overemphasize how burdensome this requirement could be for large employers,” Alfred F. Delchamps, a senior associate counsel at Protective Life, said in an Oct. 1, 2010, letter to the SEC. For example, he wrote, it may be hard to get pension-benefits data from third-party administrators. It would cost “easily in the millions” for the biggest companies to compile the data, says Timothy J. Bartl, senior vice-president and general counsel of the Washington-based Center on Executive Compensation, an industry group. “It sounds like it would be something available at the push of a button. It isn’t.” (continue reading… )



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