AFL-CIO's 2014 CEO Paywatch Demonstrates Decline in Pay Ratio's Utility as Company Shaming Tool

April 18, 2014

This week, the AFL-CIO unveiled its annual Executive Paywatch website, noting for a second consecutive year there has been a decline in both the average CEO pay (5% decrease) and CEO-to-average employee pay ratio (6% decrease) based on a survey of 350 S&P 500 companies.  In announcing the site and a related campaign to increase the minimum wage, AFL-CIO President Richard Trumka blamed the decrease in pay on an overall decline in CEO pension disclosures (which are not actual pay and are based on changes in the discount rate), rather than increases in worker pay.  The AFL-CIO's worker data uses Bureau of Labor Statistics average employee salary data when constructing its pay ratio, and union officials noted that an SEC-style pay ratio is impossible because companies are not required to disclose data about the compensation of their employees.  This year, the Paywatch pay comparisons are explicitly linked to its support for a minimum wage hike.  The Paywatch site includes ratios of CEOs to the average employee and to the minimum wage employee, and begs the question of why a company-specific pay ratio, as mandated by the Dodd-Frank Act, is necessary.  The website and the media outreach that followed provides a glimpse of how the pay ratio will be used if it is required to be disclosed by companies.  It is being used as the centerpiece of the push for a minimum wage increase, the White House campaign against inequality, and union organizing, all of which Trumka mentioned in his press conference.  Based on the results of our November 2013 survey on pay ratio as well as the total lack of pay ratio shareholder resolutions at public companies, there is no legitimate investor desire or use for the pay ratio disclosure.  The SEC is expected to promulgate a final pay ratio rule in the latter half of 2014.