The U.S. Securities and Exchange Commission recently adopted a new pay-ratio rule, which requires public companies to disclose the ratio of the wages of its chief executive officer (CEO) and the median employee compensation rate. And while the rule has gained a lot of press in regards to mega banks, it could also have serious consequences for the retail industry as well.
“The Commission adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate,” said SEC Chair Mary Jo White. “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.”
The rule was designed to provide shareholders with pertinent information to evaluate appropriate CEO compensation, and the information will be required in proxy filings by 2018.
Such reports could also end up embarrassing some retail companies, revealing the true compensation of executives for retailers that offer notoriously low wages in their stores and warehouses.
For example, TJX Cos. CEO Carol Meyrowitz earns a total compensation of $28.7 million, including salary, bonuses, equity, and pension. Meanwhile, the median wage for department store workers in the U.S. was approximately $20,500, according to Bloomberg.
The intent of the new rule, which is a provision of the Dodd-Frank Act, is to prevent some of the conditions that led to the Great Recession, and many advocates think it can help illuminate areas of the economy that are responsible for the wage gap.
Critics, on the other hand, see it as merely public shaming of CEOs that will have no real impact on the wages of the middle or working classes. “This is just a purely populist, political move and it’s not of benefit to shareholders,” CIT Group Inc. CEO John Thain, whose 2014 reported pay was $8.84 million, said Aug. 6 in a Bloomberg Television interview. “Why don’t we disclose what the top baseball player makes versus the guy who sells hot dogs in the stadium?”
Walmart recently announced that it was restructuring its wage scales, including revising its executive pay packages, tying them more closely to the companies goals, and also is investing $1 billion in increasing the pay of its hourly workers.
In the company statement, Doug McMillon, Wal-Mart Stores, Inc. president and CEO, explained: "Today, we announced comprehensive changes to our hiring, training, compensation and scheduling programs, as well as to our store management structure. These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers. We're pursuing a comprehensive approach that is sustainable over the long term."
With growing attention being drawn to these gaps between CEO and worker bees, it could mean that retailers with large discrepancies between them could suffer loss of brand loyalty or revenue unless the situation is clearly addressed.
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