Inequality in America: Why CEO-pay rules won't help

ON AUGUST 5th, the Securities and Exchange Commission (SEC), the regulator charged with keeping America's public companies in check, adopted a new and controversial rule on executive pay. Under America's Dodd-Frank Act, a law passed in 2010 that overhauled financial regulation in America, public companies must now publish a ratio which compares the pay of their chief executive to that of their median employee. Beginning in 2017, the SEC reckons that around 3,800 companies will have to start disclosing their CEO-pay ratio. Initially, this may cost American firms as much as $1.3 billion (or $340,000 per company).The rule was included in the Dodd-Frank Act after lobbying from AFL-CIO, a trade-union body, which hoped to “shame companies into lowering CEO pay”. According to data compiled by the Economic Policy Institute, a think-tank, the pay of chief executives at the largest 350 public companies by sales rose six-fold to an average of $20m between 1990 and 2000. Meanwhile, median household incomes—when adjusted for inflation—increased by just 16%.But executive pay has since leveled-off. Average pay among the top 350 chief executives was $16m last year and, according to calculations by The Economist, among a broader group of some 3,000 companies it is closer to $5m. As the chart below shows, the rise appears to shadow a broader trend in income inequality. The pre-tax income …
Source: The Economy