The US Securities and Exchange Commission voted in favour of adopting a formal rule on Wednesday that will require public ncompanies to make it clear how much the chief executive officer earns in relation to the firm’s workers.
Companies will not need to break down ratios for each worker or even each pay grade as the requirement will be to show only the CEO’s compensation in relation to median employee pay.
There will be some flexibility in how the figure for median employee pay is calculated. This could include excluding some overseas workers in calculating how many workers they employ.
Although some companies already report the data, the new requirement will set out exactly how it must be calculated and employers say that this will create an additional burden in compiling and reporting the figures.
The Securities and Exchange Commission calculates that it will cost businesses around $73 million but the US Chamber of Commerce estimates that the true figure is likely to be almost 10 times as much.
Other groups are also concerned at the financial burden on employers. Mike Ryan, vice-president of corporate governance at the Business Roundtable said: "It will impose on companies and their shareholders an extremely costly and burdensome requirement, and compel companies to disclose immaterial, if not misleading, information.”
While employee’s advocates are welcoming the move, it is unlikely to mean a change in the pay of either workers or chief executives. It does though have the potential to create tension and morale issues among workers who will see their boss’ compensation laid bare in relation to their own wage packets.
It’s worth noting that the requirement for gathering and reporting median employee earnings, likely to impact HR departments, also applies to foreign companies that are listed on the US stock markets.