SEC CEO Median Pay Ratio Disclosure: A Critical Evaluation

Abstract

Last year, the SEC CEO median pay ratio disclosure ruling, proposed in 2013 was adopted and became US law. It continues to generate a great deal of controversy. On the one hand, CEO pay has risen sharply in recent years, especially in the US. However, on the other hand, there is ongoing resentment by major US businesses and indeed non-US businesses over the perceived negative implications of the relevant ruling. This paper therefore seeks to critically evaluate the key issues arising from the disclosure, including simulation from the vantage points of the relevant regulatory bodies in the US and the UK. It is noted that CEOs and Boards do not need to rely on CEO median pay ratio disclosure in order to ascertain the suitability or otherwise of CEO pay. Moreover, it is worth bearing in mind on this point that CEOs and Boards do not necessarily need a mandated CEO median pay ratio disclosure to assess whether executive compensation packages are justified. Moreover, the methodology surrounding the final SEC pay ratio is seen to be somewhat arbitrary, Different conclusions are reached concerning the desirability of mandated CEO median pay ratio disclosures for both the US and the UK.