New Rules Could Expose The CEO Income Gap

What is the CEO Income Gap?

Have you ever wondered how much the CEO of McDonald’s earns compared to the worker who asks “would you like fries with that?”? We may soon have the answer. Some of the largest and most profitable corporations in the U.S. may soon be required to show the difference in salary between their CEOs and average workers – that is if the Securities and Exchange Commission (SEC) gets its way.

Examining The Earning Gap

We all know CEOs make a lot, but just how much? Would it shock you to hear the CEOs of Canada’s 50 most successful companies earn a whopping 235 times the salary of the average worker? The CEO income gap is even wider south of the border; U.S. CEOs earn an average of 354 times the average worker – that’s double the gap of the 1990’s.

The SEC Pay-Ratio

The SEC took the first step towards full disclosure by voting in favour of a new rule that would see publicly traded companies required by law to report this income disparity. Under the proposal, the SEC pay-ratio would measure the difference between annual compensation (salary and bonus) of a company‘s CEO and the median pay of its workers.

While the proposal has a lot of support, not everyone is a fan. Business groups like the U.S. Chamber of Commerce are strongly opposed, claiming it’s a publicity stunt aimed to disgrace CEOs with no real value to investors. According to these groups, not only will it take more time and money to gather this information, U.S. companies will be at a disadvantage to foreign companies who don’t need to measure this additional metric.

Executive Pay Comes Under Fire

Executive compensation has been under the SEC’s microscope ever since the financial crash of 2008. Millions of middle class Americans were appalled when they found themselves out of work, while CEOs continued to rake in the big bucks. A lot of CEOs with lucrative compensation packages hardest hit by the financial crisis have been blamed for their risking behaviour and lack of accountability that cost many hard-working Americans their jobs, especially in the financial sector.

The Stagnating Middle Class

While the income of America’s richest has grown by leaps and bounds, the middle class hasn’t been so lucky. The average family in America makes about the same today compared to 25 years ago, according to the Census Bureau. This is shocking, especially in a country that prides calls itself as “the land of opportunity” where anyone can supposedly rise from rags to riches.

Although the business community may grumble about the SEC pay-ratio, I believe it’s a good idea. By requiring companies to publish this metric, it will force them to carefully examine their executive compensation on an annual basis to ensure it doesn’t get out of whack. If a CEO is a making a lot more than the CEOs of competitors, it will make investors think twice if they’re really getting good value from top management.


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