By Teamsters General President James P. Hoffa
Published in the Detroit News, August 12, 2015
Those in favor of corporate disclosure won a hard-fought victory at the Securities and Exchange Commission (SEC) last week when the agency finally decided to move ahead with a portion of the Dodd-Frank financial reform law that requires companies to report the pay gap between CEOs and rank-and-file workers.
It was a long time coming. Five years ago, Congress approved Dodd-Frank. The law was an attempt to reel in the excesses of big business and banking that led to the Great Recession. But corporate America has fought it tooth-and-nail, pushing back on any and every opportunity to implement the law’s mandates.
One such provision was the CEO pay ratio rule. It required corporations for the first time to reveal how much more CEOs make that their average employees. Despite some 280,000 comments filed at the SEC calling on the agency to act, however, regulators dragged their heels. But the Teamsters and other supporters never gave up. And now, the American people have won.
Why is such a rule needed? At a time when corporate profits are near an all-time high and income inequality is growing, employees and shareholders have a right to know whether businesses are padding the wallets of top executives at the cost of workers and the company’s bottom line. The public and private sectors need to learn from past failings that caused the 2008 economic meltdown.
Under the new measure, companies will have to disclose median worker pay and compare it to CEO compensation. There is reason to believe the numbers will be shocking. According to an AFL-CIO study of CEO pay at S&P 500 companies, the average CEO earned 373 times more than the typical U.S. worker in 2014. In contrast, CEOs in 1980 made 42 times more than the average employee.
These out-of-control executive pay numbers are just another sign the current system is out-of-whack. The Roosevelt Institute, of which I am a board member, recently released a report called “Rewriting the Rules of the American Economy” authored by its renowned chief economist Joseph Stiglitz. It detailed how the current economy is being sunk by a system that is only rewarding top earners.
The U.S. must change that. Given the economy's size and complexity, the nation’s problems cannot be solved by tinkering around the edges. Instead, a total revamp is necessary, one that both grows the middle class while reining in the runaway excess of the business class. Americans will have a better sense of the problem once the CEO pay ratio rule is instituted.
The provision isn’t perfect. It doesn’t take effect until 2017. And in a nod to big business, the SEC will only require the metric to be updated every three years and will allow companies to exclude as much as five percent of their foreign workers from the equation.
But it will make a difference. According to the Economic Policy Institute, CEO pay grew 997 percent between 1978 and 2014. While the CEO pay ratio disclosure alone will not resolve income inequality in this country, it can help identify a huge source of the problem and inform how the U.S. wants to shape compensation in corporate America going forward.