The Pay Ratio Rule: Get Ready, Get Going

Abstract

It his argued the primary intention of the CEO pay ratio disclosure mandate is to embarrass companies and disrupt their work cultures so they might change their executive compensation behavior. This “shock and awe” campaign against corporate America will undoubtedly succeed on both counts. Bloomberg News has estimated that the average ratio will be 204-to-1, with some outliers, such as J.C. Penney Co., having ratios in excess of 1,000-to-1. Many boards and CEOs will be embarrassed and most companies will be disrupted to some extent by the publication of these figures. Boards should be thinking strategically today about how they will change their compensation programs and disclosure to mitigate the coming controversy.

Keywords: executive compensation