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October 22, 2013

CEO pay perks illuminated

NORMAN — Nothing seems to get U.S. corporations’ dander up like a threat to the pay and perks of their chief executives.

That’s one explanation for corporate America’s superheated, turbocharged, over-the-top reaction to the CEO pay ratio rule recently proposed by the Securities and Exchange Commission.

The rule requires most large public companies to calculate the ratio of the pay of their chief executive to the median pay of all their employees. Its general terms were mandated by the Dodd-Frank Act, which imposed numerous regulatory changes on corporate and banking behavior in the wake of the 2008 financial meltdown.

Congress, however, asked the SEC to figure out how to put it into practice. The SEC voted in September to open its proposed version to comments from supporters and opponents for 60 days. Whatever it finally approves won’t go into effect until 2015.

Wall Street, big banks and corporate lobbying groups have mustered their troops to fight the most important Dodd-Frank provisions. But the opposition to the CEO rule has a different flavor entirely. It’s not unusual for the business community to claim that a new regulation will spell the end of industry. In this case, they’re arguing it will threaten the SEC.

It’s not hard to see why. Unlike most SEC regulations, the CEO rule isn’t really designed to provide information for investors. Rather, it’s designed to provide information for the larger community — for society, if you will. Its aim is to provide ammunition for the argument that the share of corporate profits going to top management, and by extension corporate shareholders, has gotten out of control.

That’s a sound argument, shared by many management experts and economists who argue that the diversion of corporate resources from workers to executives and shareholders is a major contributor to rising income inequality in the U.S., as well as to other social and economic ills.

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