We’ve Waited Too Long for Corporations to Fix the CEO Pay Problem on Their Own
A decade after bonus-chasing executives like Angelo Mozilo crashed the economy, we need tax incentives to push companies to narrow the gaps between CEO and worker pay.
Getty Images
Executive Pay
A New Landmark in CEO-Worker Pay Ratio Disclosure
Honeywell has just revealed a 333:1 gap between the compensation of the 143,000-employee firm’s top executive and most typical workers.
Honeywell has become the first large U.S. corporation to report the ratio between its CEO and median worker compensation, in compliance with a new Securities and Exchange Commision regulation based on the 2010 Dodd-Frank financial reform legislation.
Honeywell, a Fortune 100 company that concentrates on manufacturing technologies, included the pay ratio information in a preliminary proxy statement posted on the SEC web site after 5 p.m. on Friday, February 16.
Two particularly noteworthy revelations stand out in the Honeywell disclosure.
The first: Honeywell CEO Darius Adamczyk, with only nine months of experience in his chief executive job, made 333 times as much in 2017 as the median Honeywell worker.
Adamczyk replaced long-time Honeywell CEO David Cote in April 2017. To calculate the CEO-worker pay ratio, Honeywell annualized Adamczyk’s compensation, coming up with a total of $16.5 million. The median worker pay at the firm: $50,296.
The second: The Honeywell pay ratio disclosure reveals previously unreleased information about the extent of the company’s offshoring of jobs. Honeywell revealed this information because the SEC pay ratio rule allows companies to exclude some of their foreign-based workers from the calculation of median worker pay. But companies that go this route must make additional disclosures.
Under the SEC ratio disclosure rule, companies have two ways to exclude non-U.S. employees from their calculation of median worker pay.
If a company’s non-U.S. employees account for 5 percent or less of its total employees, the firm may exclude all of those employees when making its pay ratio calculations. But in this circumstance, if the company chooses to exclude any non-U.S. employees, it must exclude all of them.
If a company’s non-U.S. employees exceed 5 percent of its total U.S. and non-U.S. employees, the firm may exclude up to 5 percent of its total employees who are non-U.S. employees. Honeywell, with 86,092 non-U.S. workers and 57,027 U.S. employees, falls in this category.
Firms have an obvious incentive to exclude non-U.S. employees from low-wage countries from their median worker pay calculations. The more low-wage workers companies exclude, the higher their overall corporate median pay will be — and the less outrageously overpaid their CEO will appear.
But if companies in Honeywell’s situation exclude any workers from a foreign nation, they must exclude all non-U.S. employees in that nation and report the number of employees in each nation being excluded.
In its new pay ratio disclosure, Honeywell lists 27 countries where the firm has excluded a total of 7,040 employees. This list of countries does not include any Western European countries or Japan, all higher-wage nations. As a result, the 333:1 ratio that Honeywell is reporting most likely would be even wider if Honeywell took all its workers into account
Corporate pay justice activists around the United States see the new pay ratio data now just starting to emerge as long overdue, and shareholders, workers, consumers, and policymakers interested in narrowing our country’s economic divide are already mobilizing to put the data to good use. They’re advancing efforts, at every level of government, to leverage the power of the public purse against the extreme economic inequality that existing corporate pay practices so routinely generate.