The other big argument against the pay ratio disclosure is that it will vary widely by industry and corporate structure and thus could lead people to make invalid comparisons between companies. The same, of course, could be said of debt-to-equity ratio, gross profit margin and return on equity. The fact that some people might misinterpret such information hardly justifies not disclosing it.
The real reason companies don’t want to disclose the ratio is that it would be used by labor unions, corporate critics and journalists to embarrass executives who, as far as I can tell, are beyond being embarrassed. (See my colleague Peter Whoriskey’s wonderful piece about Dean Foods in last Sunday’s Post.) After years of criticism, they have decided that the higher pay is worth whatever cost it carries in terms of worker disenchantment and public disapprobation.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
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The better argument against the pay-ratio disclosure is that there’s not much more that can be learned from such disclosures. We already know from numerous studies that chief executives of large U.S. corporations make hundreds of times what an average worker makes, with the gap growing steadily wider. We also know it’s possible to run successful advanced market economies with large corporations where the ratio is 25-1 (Britain), 13-1 (Sweden), 11-1 (Germany) and 10-1 (Japan). Whether the ratio at Exxon-Mobil last year was 320-to-1 or 276-to-1 seems rather beside the point.
Harvard Business School professor Rakesh Khurana has done extensive research on the value chief executives bring to large organizations, concluding in his excellent book, “Searching for a Corporate Savior,” that it is vastly overstated by executive pay packages.
“I was pretty naive,” he said. “I thought that once the facts were presented and there was reasoned discussion, corporate behavior would change.” Alas, it hasn’t turned out that way.
Khurana cites the old wisdom is that the simplest explanation is often the best one. “This is really a story about power: private power, the power of the economic elite, has trumped social norms, has trumped political power.”
It’s like this: Unless we are prepared to stop working at companies that overpay their executives, investing in them and buying from them, there’s little hope of restraining executive pay. The reason they prevail is not only because they have the power, but because they care more about winning than we do.
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