Disclosing CEO-to-employee pay

Companies may soon have to disclose CEO-to-employee compensation ratios. According to the Society for Human Resource Management, the U.S. Securities and Exchange Commission recently voted on a rule that requires some enterprises to make the wage data public. The news source indicates that "emerging growth companies, smaller reporting companies and foreign private issuers" will be exempt.

The move has both its supporters and detractors. Among the former is Richard Trumka, president of AFL-CIO, who believes that the ratio can affect how businesses are perceived.

"When the CEO receives the lion's share of compensation, employee productivity, morale and loyalty suffer. In contrast, reasonable CEO-to-worker pay ratios send a positive message to the workforce that the contributions of all employees are important to running a successful company," Trumka said.

Irv Becker, national practice leader at the Hay Group, told the SHRM that CEO-to-employee pay will merely be a tool used to shame upper-level executives. Becker further explained that the SEC's new provision doesn't provide any tangible benefits to anyone.

"The statistic has so much 'noise' that it's rendered meaningless, failing to take into account key differences between strategy, sectors and geographies, among other factors, all of which impact a company's pay ratio," Becker said.

What this means for HR
Politics aside, the SEC's rule has far-reaching effects for HR departments across the country. Employers who have to comply with the new regulation will have to determine the CEO-to-employee wage ratio. This means finding the median worker salary to compare to the CEO's earnings.

The process will likely be difficult, especially for enterprises that don't have cutting-edge payroll processing software at their disposal. Manually calculating compensation and averaging wages can be an arduous procedure that can take the HR department weeks or even months.

Companies need to invest in efficient payroll services in order to comply with the SEC's latest rule. Compensation platforms can be automated to calculate the ratio. HR representatives can then report their numbers to the SEC and make them publicly available without worrying about any mistakes.

Further, HR departments should consider the benefits of implementing a web based payroll service. This tool would be especially beneficial for national organizations who need to account for the wages of employees spread around the country and aren't in the same office.