Compensation Issues

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Why massive CEO, employee pay discrepancies aren't drawing much backlash

After a Securities and Exchange Commission rule required public companies to disclose the pay ratio of their CEOs and median employees for the first time this year, corporate leaders prepared for backlash—but discussion on CEO pay appears to be overshadowed by conversation about gender pay gaps, Bloomberg reports.

The disclosures showed CEOs of the 500 largest U.S. com­panies by market value received pay packages about 160 times larger than their standard ­employees' compensation, according to data compiled by Bloomberg

But the disclosures were accompanied by a different discussion of workplace inequities that muffled talk of CEO pay: the #MeToo movement. The movement started by addressing sexual harassment, but revived discussions about pay ­inequity between male and female employees. The pay gap between men and women has been stuck at 20¢ on the dollar for the last two decades. 

Several major companies have been accused of gender pay disparities, including Google, which was sued for pay discrimination in 2017. Microsoft and Twitter were sued for favoring male engineers for advancement.

In response, companies such as Nike, Starbucks and Adobe Systems announced salary adjustments to eliminate gender pay gaps. But the attention to transparency did not extend to the emerging CEO pay ratio data.

"Public pressure, the #MeToo movement, the U.K. wage gap disclosures, all of that coming together" helped elevate the conversation about gender pay differences, Natasha Lamb, managing partner at Arjuna Capital, an ­investment firm urging companies to disclose male-to-female pay ratios, told Bloomberg.

The shortage of attention on CEO-to-worker pay, is "a missed opportunity to get to the core of income inequality and the fact that capitalism is working for capitalists while many others are left behind," Ms. Lamb said.

Keith Payne, PhD, professor of psychology at the University of North Carolina at Chapel Hill, said the uneven interest may be linked to concepts about fairness. Americans may justify CEO pay due to beliefs in meritocracy and the value of hard work.

Furthermore, people aren't as moved by the abstract statistics represented in the pay disclosures. "Pie charts and tables don't move us to tears," Dr. Payne told Bloomberg.

"Stories and individual cases are much more effective, especially if it's relevant to aspects of our identities."

As pay disclosures accumulate in the next few years, the CEO-to-worker pay ratio may become more noticeable, Rich Clayton, research director at CtW Investment Group, told Bloomberg.

 "Americans will be frustrated when they see a company's profits grow year after year while the median wage isn't moving," Mr. Clayton said. "That will galvanize the point that something's broken."

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