India Spotlights Corporate Pay Ratios

In India, major corporations now have to disclose their CEO and median worker pay. This disclosure could be a CEO pay game changer.

Over the past five years, new data show, Wall Street has spent $1.166 billion to elect lawmakers opposed to the Dodd-Frank Act financial industry reforms enacted in 2010 — and another $2.08 billion on lobbying to keep those reforms from going into actual effect.

One result: Corporations today can still legally ignore the Dodd-Frank provision that requires them to annually reveal the ratio between their CEO and median worker pay.

The reason? The Securities and Exchange Commission, the chief federal agency that regulates Wall Street, has yet to finalize the rules that would allow this disclosure mandate’s enforcement.

[UPDATE: On August 5, the SEC voted in a new CEO pay disclosure rule.]

Writing rules for pay ratio disclosure shouldn’t, of course, take over five years. In India, lawmakers passed a CEO-worker pay ratio disclosure mandate in 2013, three years after the passage of Dodd-Frank. That mandate has already gone into effect, and the first required pay disclosures are now emerging.

American consumers, new research shows, would rather not give their dollars to corporations that pay their top execs far more than their workers.

The top exec at India’s largest cigarette maker, the Indian public has learned, is making 439 times the median employee salary at his company. His counterpart at India’s top IT services firm is pulling down 416 times his company’s most typical employee pay.

Disclosures like these, one Indian business publication editorial noted last month, “drive home the point that income inequality is alive and well in corporate India” — and needs “reining in.”

Pay ratio disclosure makes this “reining in” easier. Disclosure gives shareholders a benchmark they can use to compare the pay gap at their company with the gaps at other firms in their industry.

With this info in hand, observers believe, institutional shareholders in India “have no excuse for remaining silent spectators when corporate boards approach them with exorbitant pay packages.”

But activists in the United wouldn’t have to rely only on shareholders for reining in executive excess if ratio disclosure went into effect. They could link ratios to legislative remedies — by pressing for corporate tax rate hikes on companies with wide pay gaps or pushing to deny government contracts to firms with wide divides.

Activists could also organize consumer campaigns against corporations that overpay their execs at the expense of their workers.

Such campaigns, new research shows, would likely encounter widespread support. If given a choice, Harvard Business analysts Bhavya Mohan, Michael Norton, and Rohit Deshpandé have found, consumers would rather buy from companies with fairer CEO-worker pay ratios.

Sam Pizzigati edits Too Much, the Institute for Policy Studies online monthly on excess and inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press).