Newspaper article St Louis Post-Dispatch (MO)

Nicklaus: New Ratio Won't Be the Magic Number That Reduces Executive Pay

Newspaper article St Louis Post-Dispatch (MO)

Nicklaus: New Ratio Won't Be the Magic Number That Reduces Executive Pay

Article excerpt

It's no secret that the big boss makes more than the cubicle dwellers who keep the company running. Three years from now, we'll know exactly how much more.

In a sense, the information is long overdue. The Dodd-Frank Act, passed in 2010, required companies to publish the ratio of their chief executive's pay to the wages earned by a median worker, but the Securities and Exchange Commission didn't approve a disclosure rule until Wednesday. Even then, it gave companies until 2018 to comply.

Supporters of the rule say the pay ratio will be a sort of magic number that will help investors, and everyone else, know when pay is out of whack. Opponents say it's a meaningless calculation that is meant to embarrass CEOs.

We won't know who's right until companies start publishing the numbers and investors begin debating them, but it's already obvious that cross-company comparisons will be misleading.

The SEC says the median-worker calculation must include all employees, including foreign workers, temporary staff and part- timers. That means a technology company that owns factories in Asia will probably have a higher ratio than Apple, which outsources its manufacturing. A fast-food chain that owns most of its stores will probably have a higher ratio than McDonald's, where 90 percent of restaurants are owned by franchisees.

"I find it very difficult to benchmark this number against anything," says Radhakrishnan Gopalan, associate professor of finance at Washington University's Olin School of Business. "I don't think there was a clamor from institutional shareholders and other investors for this."

Eric Marquardt, a Clayton-based consultant with Pay Governance, also questions the ratio's value to investors. "This piece of the legislation has more of a social agenda," he said. "I'm not sure what use it is going to have."

Once the number is published in corporate documents, it's sure to show up on protest signs and in activists' reports. …

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