The Issue of Compensation: How does the pay gap between CEOs and Employees affect?

It has been three years later, and still there has been no information of the CEO to employee ratio upon pay of public companies. Here, the question still remains, “Do companies have to determine their median employee compensation by an actual count or would statistical sampling suffice? How should global companies reconcile differences in wages and benefits from one country to the next?”

Three years ago, Congress has made it a requirement that public companies had to reveal the ratio of pay between CEOs and their employees. The reasoning behind this was due to the fact that there was a belief that this issue was a big influence upon the financial crisis of 2008. Since there have been no results, Congress has left it up to the Securities and Exchanges Commission to come up with a rule to figure out this calculation of these companies.

However, some people are not fully supportive of this decision. Tim Bartl, who is the president of the Center of Executive Compensation, the advocacy arm of a Washington nonprofit called the HR Policy Association, does not believe that this would influence an investors’ business decision making.

However this requirement also discloses the CEO’s entire compensation: from salary to bonuses to the value of stock based awards. There are many organizations that calculate ratios such as AFI-CIO’s average worker to CEO ratio is 357, Bloomberg’s ratio of Standard to Poor’s 500 companies is 204, and the average of the top 100 companies is 495. Basically what this means is that CEOs of the companies (on the table) average 495 times of the non-supervised workers in their industries. These ratios are still in the works and are not exactly as accurate as they can be due to differential denominators, but still, the numbers are here to see.

Peter Drucker, who is a management theorist, states that the ratio is in fact a huge deal. In an article he had written in 1977, he considered a 25:1 or even a 20:1 ratio is the appropriate limit. Anything beyond that is not very good for business due to the fact that it tends to undermine the employees and it promotes a “winner-takes-all” type of mentality which can hurt the company in the long-term.

There are many mixed feelings about disclosing comparisons of pay between executive members and employees. What is the problem that is dealt with here? Do you think CEOs deserve to make so much pay? Of course they are taking on a position that requires a lot of strategic planning, but say if an executive member were to be paid a lower annual salary, would that make an affect of their work ethic? We value these people as our managers, and if they are not compensated enough, what do you think would happen?

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