SEC’s Ruling on CEO Pay – Weighing Business Down

Ernest Jennings Ford ‒ better known as Tennessee Ernie Ford ‒ was a country, pop and gospel singer during my growing-up years. He is probably best known for popularizing the song, “Sixteen Tons.” The refrain is memorable:
    “You load sixteen tons, what do you get?
    Another day older and deeper in debt.
    St. Peter, don’t you call me ’cause I can’t go,
    I owe my soul to the company store.”

The song pays homage to the brutal working conditions that coal miners faced in the 1930s and 40s, made worse by the dead-end economic system of the “company store.” By the time Ford recorded “Sixteen Tons” in 1955, conditions had improved dramatically for workers, and the company-store concept was history. Yet the spirit of the song struck a chord and became an anthem of sorts for blue collar workers everywhere. (Of interest to Hoosiers, Ford’s first live performance of the song was in July 1955 at the Indiana State Fair.)

Much has changed between then and now. The ’50s were a manufacturing era, with most workers holding blue collar positions. Technology was beginning its advancements, but had not yet transformed the lives of most working people. It was, indeed, a different time.

In 1965 the average wage of a corporate CEO was 20 times that of the average worker in that same company. The best athletes in the world probably earned 10 times what the average worker earned. Today, those numbers have changed drastically. Our middle class has become squeezed, with many joining the upper middle class, and many others dropping to upper lower class ranking. At the same time, CEO pay has escalated to where the average corporate CEO may make 300 times the average wage at his or her company. Their salaries pale next to those of the best athletes, who are paid multiples of what CEOs earn.

Every penny of CEO pay is made public, with corporate filings available to shareholders and prospective shareholders ‒ that is to say, everybody. A board of directors, elected to represent those shareholders, determines what the compensation of the CEO will be. Whether or not you and I believe the CEO pay is fair, there is an accountable process in place to determine what that pay should be.

Recently, however, the federal government has glommed onto the notion that free-market pay scale is a problem, and that government should solve it. Suddenly, all kinds of initiatives have been erupting in different areas of government to deal with pay disparity. Some municipalities have hiked minimum wages to as much as $15 per hour. Citing the Fair Labor Standards Act of 1938, President Obama recently decreed that he will raise from $23,700 to $50,400 the salary threshold below which employees are to be paid time-and-a-half for work hours exceeding 40 per week. This development comes on top of a ruling that mortgage originators at banks are not eligible to be exempt from overtime pay.

Last week the Securities Exchange Commission announced a ruling to require public companies to disclose the ratio of the annual compensation of their CEOs to the median of the annual compensation of companies’ employees. This is yet another “gift” from the Dodd-Frank Act … never mind that public company CEO compensation is already public information. This ruling will not help anyone and, in fact, will only serve to run up the cost of conducting business, due to considerable time squandered to collect this data and then report it on a regular basis. Training will be required, so that compliance is assured. Suits will be filed and defended. And for what? Nothing will result from this, other than subjecting businesses to criticism and diverting time away from productive use.

These governmental mandates will not solve anything. They will drive up prices on goods and services, to the detriment of consumers, and they will hamper business profitability, to the detriment of workers. This SEC ruling is sixteen tons of nonsense, and it’s weighing us down.

– S. Joe DeHaven

 

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