The CEO Pay Gap is Far Worse than the New Disclosures Reveal

By Sahid Fawaz

If you think the reported CEO salaries are bad, what is not disclosed is worse.

The Westin

Ralph Nader and Steve Clifford write in USA Today:

“Beginning this year public companies must compare the pay of their CEO with that of their median employee. Required by Dodd-Frank, disclosure of this CEO pay ratio has produced some jaw-dropping numbers. Aptiv, a maker of auto parts, reported that its CEO made 2,526 time more that its median employee. The CEO pay ratio was 2,483 to 1 at the temp agency ManpowerGroup, 1,804 to 1 at amusement park owner Six Flags, and 1,465 to 1 at Del Monte Produce.

These companies explain that they employ many part time, temporary and seasonal employees, often in low wage countries. What they do not reveal is that the true CEO pay ratio may be more than twice the one they reported.

The reported numbers excludes gains on stock options, often the largest component of CEO compensation. Thanks to an accounting anomaly corporate boards count as compensation only the value of the options at the time they were granted. When the CEO later cashes them in, the board treats CEOs as lucky shareholders who benefited from a higher stock price, even though they paid nothing for them.

Aptiv reported that CEO Kevin P. Clark’s total compensation was $13,800,347. He also received $17,699,452 from exercising stock option, an amount not included as compensation.

Where did this $17,699,452 come from? According to the company, it came from the tooth fairy. The rest of the shareholders lost money because their shares were diluted when the company printed more shares to give to the CEO. But the company, abetted by the accounting profession, says nothing happened. Add in gains on options and Aptiv’s CEO ratio soars to 5,760 to 1.

Clark is hardly alone. Manpower reported that CEO Jonas Prising was paid $11,987,873. This number excluded $11,292,785 of gains from exercising options and from vesting of restricted stock. With these the CEO pay ratio is 4882 to 1. Performing similar calculations Six Flags’ ratio climbs to 2741 to 1 and Del Monte 2239 to 1.

Outsize CEO pay harms companies. The millions they waste on executive pay is a small fraction of the total cost of the machine. The effects on employee morale are much more costly. When the boss makes 2,000 times what you do, it is difficult to believe that ’employees are most important asset.'”

For the rest of the piece, visit USA Today here.

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