Score one for transparency: SEC adopts pay ratio rule

Starting in 2017, companies will have to disclose how much CEOs make compared to their employees

It's well-know that, in recent decades, salary for CEOs has skyrocketed, while pay for the average worker has stagnated, at best, and even gone down by some estimations. Of course, there's nothing much that can be done about this. Boards decide CEO pay, and nobody can make them change it. Perhaps we can shame them a little, though. As they say, sunlight is the best disinfectant.

The Securities and Exchange Commission ruled in favor of a new rule for pay ratio dislcosed on Wednesday, which will shed light on how much more a CEO is being paid than their average employee.

Companies will be forced to disclose to its shareholders the median of the annual total compensation of all its employees, except the CEO; the annual total compensation of its CEO; and the ratio of those two amounts. 

The information will have to be disclosed in registration statements, proxy and information statements, and annual reports that call for executive compensation disclosure.  Companies will be required to provide disclosure of their pay ratios for their first fiscal year, beginning in January of 2017 or later. So don't get too excited, it's going to be a while before any of this information gets out. 

Don't expect to see these numbers on quarterly earnings reports, though, since those do not require that kind of information.

As for that median compensation, the SEC is giving companies "flexibility in meeting the rule’s requirements." That means that the company is allowed select its methodology for identifying its median employee and that employee’s compensation, including through statistical sampling of its employee population or other reasonable methods. 

Companies can also exclude non-U.S. employees from countries in which "data privacy laws or regulations make companies unable to comply with the rule and provides a de minimis exemption for non-U.S. employees."

Still, what the SEC has done here is give shareholders, and the public, information that will let them determine if they think the compensation that their CEO is getting is fair or not.

“The Commission adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate,” SEC Chair Mary Jo White said in a statement.  “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.”

Tech CEO pay

In May, Equilar, an executive compensation research firm, released the list of the 200 highest paid CEOs in 2014, including base salary, bonuses, stock awards compensation and perks.

Median pay for the 200 CEOs was $17.6 million, a growth of 21% year-to-year. 

Out of the top 10 CEOs, four of the executives were from technology companies, with the highest pay going to one of the newest CEOs on the list: Microsoft's Satya Nadella, who was only named to the position in February of 2014.

Nadella took home $84.3 million last year, on a relatively low-base salary (for a company of Microsoft's size) of $918,917, but more than made up for that with $79.7 million in stock awards. 

Right below him was GoPro CEO Nicholas Woodman, who took home $77.4 million. Again, a lower base salary, this time $800,000, was offset by extremely large stock awards of $74.6 million.

At number 7 was Oracle CEO Larry Ellison, who walked away with $67.2 million. His base salary was only $1, buy Ellison made $65 million in option award.

Ellison, who was the highest paid CEO of 2012, is saying goodbye to this list, as it was revealed last year that he has stepped down from his position after 37 years.

The last CEO to make the top 10 was Steven Mollenkopf from Qualcomm, who made $60.7 million in 2014. 

Notably, among the top CEOs, the highest paid woman was Yahoo CEO Marissa Mayer, who made $42.1 million, putting her at 14th on the list. Her base salary was $1 million, and she walked away with $42 million stock and option awards. Mayer may be taking a lot of flack from her shareholders right now, but she's definitely the most powerful woman in tech.

(Image source: gametweeps.com)