The Advisors' Blog

– Broc Romanek

With a season of pay ratio disclosures in the books, the debate whether the ratio should be calculated continues. Here’s an excerpt from this ValueEdge blog:

As the dawn follows the night, so must the “investors don’t know what they want” be followed by the “it’s too expensive” argument. Others have suggested pay ratio disclosure sheds a light on income inequality. Yes, but existing disclosure of executive pay already shows how much executives are paid. If the goal is to highlight income inequality, couldn’t we do it in a less costly way? For example, we could disclose the ratio of a CEO’s pay to the median salary of a worker in the company’s industry. The Bureau of Labor Statistics provides plenty of industry data for comparison.

If companies don’t know what the median pay is for their employees, we suggest that what is expensive is their ignorance. They should want to know. They should have the capacity to know.

We find it material. We believe journalists, securities analysts, board comp committees, and scholars will as well. We look forward to developing many years of pay ratio data to help us understand better the ROI of the management and boards of our portfolio companies. In the meantime, we suggest that firms like Pearl Meyer spend more time telling clients what they need to hear instead of what they want to hear and leaving the determination of what shareholders need to know to shareholders themselves.