Category Archives: Economics

Why pay ratio disclosure will create more problems than it will solve

Why pay ratio disclosure will create more problems than it will solve
Why will disclosing the ratio of CEO pay to the median pay of employees is pointless, costly and has the potential to backfire:
  • The ratio does not tell us whether a CEO has been successful at his/her job. The CEO’s contribution is measured by the value the CEO has provided to its shareholder. A CEO Pay/TSR ratio will make more sense
  • It will encourage companies to let go of lower paid employees and increase capital investments (at best) or increase outsourcing, potentially to foreign firms to improve the ratio. While under certain circumstances these moves may be seen as positive, they do not serve one of the main purposes of the rule which is to reduce inequality
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