We can’t really say that the 113th is a Do Nothing Congress, they are doing something. However, what the Congress is doing is not getting much press. The Village Media, hot to inspect the implications of the latest Drudge headline, or to masticate endlessly over the ramifications of immigration reform or health insurance reform politics, is singularly inept at economic reporting. The problem is that there’s nothing particularly sexy about the implementation of the 2002 Sarbanes Oxley Act or the Dodd-Frank Act, and this may be exacerbated by the evident lack of economic knowledge of some who carry the label journalist.
Our problem is that as everyday, ordinary, reasonably well educated Americans we are getting a heavy dose of information slanted toward the professional investors — “business news” designed by and delivered to professional investors. Today’s post concerns a topic once rendered dramatic enough to attract the attention of the news networks — when a sufficient number of 99% Protestors raised a ruckus — but now has sunk back beneath the ocean’s Mesopelagic Zone: Corporate CEO Pay.
There’s A Plan Here
The Dodd-Frank Act, section 953 (b) was never popular with corporate leadership. The section dealing with the disclosure of CEO compensation was initially ignored, never really enforced, and now the Republican controlled House of Representatives would like to repeal it wholesale. [NVRDC]
Corporations are currently required to follow the rules pertaining to section 953 (b) which are, in detail:
(1) IN GENERAL.—The Commission shall amend section 229.402 of title 17, Code of Federal Regulations, to require each issuer to disclose in any filing of the issuer described in section 229.10(a) of title 17, Code of Federal Regulations (or any successor thereto)— (A) the median of the annual total compensation of all employees of the issuer, except the chief executive officer (or any equivalent position) of the issuer; (B) the annual total compensation of the chief executive officer (or any equivalent position) of the issuer; and (C) the ratio of the amount described in subparagraph (A) to the amount described in subparagraph (B). (2) TOTAL COMPENSATION.—For purposes of this subsection, the total compensation of an employee of an issuer shall be determined in accordance with section 229.402(c)(2)(x) of title 17, Code of Federal Regulations, as in effect on the day before the date of enactment of this Act. [DoddFrank]
Translation: Corporations are now required to report the ratio of pay between their CEO’s and their “median” or most typical workers. The plan devised by the CEO’s and their Congressional allies is to avoid telling the investors and the public anything about CEO pay…ever.
The Bill to Implement the Plan
The bill introduced into Congress to put this simple plan into effect is H.R. 1135, Representative Bill Huizenga’s (MI-4) “Burdensome Data Collection Relief Act.” It is summarized by the Congressional Research Service as follows:
“Burdensome Data Collection Relief Act – Amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to repeal the requirement that the Securities and Exchange Commission (SEC) amend certain federal regulations about executive compensation to require each issuer of securities to disclose in any filing: (1) the median of the annual total compensation of all the issuer’s employees, except the chief executive officer; (2) the annual total compensation of the chief executive officer; and (3) the ratio of the first amount to the second.”
In short — corporations will no longer be “burdened” by having to disclose the total compensation of their chief executive officers, or to disclose the ratio of CEO pay to that of their median workers. And, those of us in the general public will no longer be “burdened” by having such information available. At this point, the CEO’s would be pleased to have information about their compensation packages drift and drop down into the Abyssopelagic Zone on its way to the Hadalpelagic…
One criticism of the requirements of section 953 (b) is that executive pay is a package of components consisting of base pay, bonuses, stock grants and other long term compensation, accumulated benefits in pension plans, and the value of accumulated benefits in more specific executive pension plans. Some of the benefits are much higher than the base pay. [BlmLaw] In short the argument is that computing the CTAC (total annual compensation) is “difficult.” It’s tempting to offer the rejoinder that perhaps someone would like to sell the corporation a computer for its actuaries and auditors to use in this calculation. The computation is probably too much for the average abacus, and perhaps even for a nice old fashioned pocket calculator, but … I thought this was why we had computers?
Why the introduction of H.R 1135?
The essential question boils down to: Is it worth the effort to calculate and compile statistics on corporate CEO compensation?
Representative Huizenga says no.
“Huizenga told BNA that “Section 953(b) of Dodd-Frank creates an enormous burden for publicly traded companies while offering no corresponding benefit. By forcing publicly traded companies to report median total compensation, the federal government is requiring companies to provide data that is potentially misleading to investors due to the differing geographic locations of the business. A salary in Detroit is going to be different than a salary in San Francisco, which is going to be different than a salary in London.” [Huizenga]
With all due (lack of) respect, I think individuals can figure out that a company based in the U.S. with most of its employees in Bangladesh is going to have a slightly skewed ratio of CTAC to MTAC. (median total annual compensation) Likewise, its not hard to figure that the ratio will be different for companies with domestic manufacturing or service provision activities. The point remains — whether the ultimate calculation can be slanted is assumed, it’s the out of control full on flash flood of executive compensation which remains unaddressed by corporate boards and problematic for their employees.
Think just for a moment or two about the great push to disclose the salaries and benefits of public employees; as if kindergarten teachers, local firefighters, DOT personnel, and retired police officers are a “Great Drain On The American Way of Free Enterprise” and we should all know exactly what they are collecting. However, the base pay, benefits, general and specific pension plans, and bonuses of corporate executives is just “tooooo difficult to calculate,” and the great unwashed might be “ill informed” by the release of such data. It appears as though requiring the corporation to reveal the compensation of top ranking employees is enough to drive them all so frantic as to require fainting couches trailered from their golf carts.
Now, where might Representative Huizenga have gotten the notion that section 953 (b) was the cause of so much pearl-clutching? There’s a hint in a January 19, 2012 letter from the Financial Services Roundtable to SEC Commissioner Mary Shapiro. (pdf) The letter is a summation of the common talking points. The section is “too difficult,” some of the results might be “misleading,” and their are problems for multinational corporations.
It shouldn’t surprise any one that the signatories to this epistle include such very special interests as the American Petroleum Institute, the American Insurance Association, the National Association of Manufacturers, the Financial Services Roundtable, the Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce. (*full list provided below) We’d probably not see another such collection of pro-corporate/financial interests beyond the manicured greens of Augusta, Merion, Pebble Beach, and Oakmont.
Breaching the Green Baize Door
Once upon a time, in the days of Downton Abbey, when the domains of the served and the servants were rigidly prescribed, the green baize door separated the two realms into precisely delineated classes. To trespass into the the “other’s” territory was all but an assault on foreign territory. Thus, the dis-inclination to divulge such information as CEO compensation to those below stairs. The compensation packages are “too complex for the average person to understand,” and the recipients might be mislead by the statistical requisites necessary to calculate the ratios with any precision.
Further, the computations are an annoyance for the corporate management, confusing for the multi-national corporate structure, and of only moderate utility to the domestics.
What the Residents beyond the green baize door have decided, if we are to believe their January 2012 missive, is that the inconvenience to the Residents outweighs the value of the information to the Domestics. Thus, on June 19, 2013 members of the House Financial Services Committee voted to protect the Residents on a 36-21 vote to repeal section 953 (b) and send H.R. 1135 to the floor of the house. [HFSC pdf]
If the Residents have their way, no more information about CEO compensation will flow down through the green baize door, and the amount of compensation received by the Executive Class will be consigned to the Hadalpelagic Zone as far beneath the waves as possible. What could possibly go wrong?
*Signatories to the January 19, 2012 letter to Commissioner Shapiro: American Benefits Council, American Insurance Association, American Petroleum Institute, Business Roundtable, Center On Executive Compensation, Competitive Enterprise Institute, The Financial Services Roundtable, HR Policy Association, National Association of Manufacturers, National Association of Real Estate Investment Trusts, National Association of Wholesaler-Distributors, National Investor Relations Institute, National Restaurant Association, National Retail Federation, Property Casualty Insurers Association of America, The ERISA Industry Committee, The Real Estate Roundtable, Retail Industry Leaders Association Securities Industry and Financial Markets Association, Society of Corporate Secretaries & Governance Professionals, Society for Human Resource Management, U.S. Chamber of Commerce,WorldatWork