Feb 17, 2011

Turning Up the Heat on CEO Pay

The Securities and Exchange Commission is busy writing rules that stem from the Dodd-Frank financial reform bill, which was signed into law last year. Among them is one that would require public companies to disclose the ratio between a CEO’s total compensation and the median total compensation for all other company employees.

Not surprisingly, corporate lobbyists are trying to water down this provision.  But Peter Drucker, we are confident, would have been in favor of the strongest rule possible.

Drucker asserted that the proper ratio between a chief executive’s pay and that of the average worker was around 20-to-1. That’s a far cry from the current ratio of more than 260-to-1 found at major U.S. companies.

“I have often advised managers that a 20-to-1 salary ratio is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies,” Drucker noted.

Today, we submitted our comments on this issue to the SEC.

What do you think: Is it important for companies to disclose the relationship between CEO pay and average worker pay? Why do you think companies are resistant to this? Could more transparency actually change behavior?

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