The securities and exchange commission’s compensation ratio rule: a bad thing for retailers.


At present, U.S. companies spend a lot of time and resources preparing for the first time to report the ratio of CEO pay to median compensation. This is because the securities and exchange commission’s new pay disclosure rules have just come into effect in 2018, following the enactment of the 2010 dodd-frank Wall Street reform and consumer protection act.
According to the securities and exchange commission’s own calculations, the rule would cost employers $1.3 billion in 2018. But to what extent? Supporters of the rule say shareholders will have a new measure of CEO pay. Unfortunately, the rules are fundamentally flawed, and are particularly inappropriate for a fair comparison between companies in different industries with different business models. Therefore, large sums of money and a lot of time and energy will be used to create a misleading indicator, which is of little value to shareholders.
At the heart of the problem is how to calculate the ratio: it is heavily biased against companies that rely on seasonal and part-time workers. The rules stipulate that every worker on the day, including part-time workers, temporary workers and seasonal workers, must be included in the median of a year in the median wage. It also points out that while permanent employees’ salaries can be calculated annually, part-time, temporary and seasonal workers’ salaries cannot be the same. Some of the compensation for non-permanent employees will undermine the bottom line of pay distribution and significantly lower the median decline of firms that rely too heavily on flexible Labour.
When part-time and temporary workers are excluded from the equation, the retail wage is quite favourable compared with other industries. According to Mercer, full-time retail workers earn an average of $28 an hour, or more than $50,000 a year. Apple, a full-time worker, will provide a more meaningful indicator of apple’s comparison. As it is written, the rule does not reflect the realities or needs of the country’s diverse workforce.
There is no better example than the retail sector where 30 per cent of employees are part-time. Retailers run their stores to make people shopping. If consumers need something in the evening, mainly at the weekend or at the store shopping, retailers respond to these demands. To do this, they expanded their workforce during peak hours, often online 24 hours a day.
The retail sector offers jobs to millions of americans looking for flexible jobs. This includes students who are trying to pay for college tuition, care for children or aging family members, who want to supplement retirement income and disabled people who are unable to work fully. Retail work is also the first place where young americans experience the labor force – in fact, the retail industry employs a quarter of all teenagers.
An estimated 75% of part-time workers choose this timetable. It is hard to imagine an economy without these types of jobs, or many other industries that have not been trained by employees in the retail sector.

However, according to the securities and exchange commission’s compensation rules, companies that offer these opportunities will be attacked by unfair apple attacks on oranges. Consider an example of two companies with 100 full-time employees and the same salary standard. The first employee earns $1 a year, and the 100th employee earns $100. Everyone else is earning a salary of $1: $2 for an employee, $3 for an employee, and so on.
Now they think both companies are doing well and need more staff. The company’s demand fluctuates, requiring employees to fill in hours during peak hours, so it employs 20 part-time workers and 25 seasonal workers to cope with growing demand. These part-time and seasonal employees work long enough to equal 15 full-time employees in a year. Company B has a completely different business model, with more constant demand, employing 15 full-time employees to cope with similar increases in demand. To make math easier to follow, assume that all 15 new employees are paid at the bottom of the salary range, just like company A.
Assumes that the chief executive’s salary is the top $100, the chief executive of A company to pay ratio of 3.6 times, and B company only 2.3 times – the two companies pay rate difference is very big, wages and similar work time by their employees.
It makes no sense to include part-time and seasonal workers in calculating the CEO’s compensation ratio to employees, especially if the company doesn’t allow them to pay their annual salary. Considering the labor gap, different industries will be full-time CEO pay with work for a few hours a week or weekly working hours of employees, employee comparison does not provide an accurate indicator. At the very least, companies should be allowed to make annual salaries for part-time and short-term staff. It may still lead to the skewed ratios calculated above, but it will deviate far from the normal distribution and provide a fairer comparison.
The rule would punish companies for catering to consumers. It is a shame for retailers to offer flexible jobs and entry-level jobs to young americans. It demoralized those who had careers and climbed the economic ladder. It won’t do is provide an effective CEO and employee compensation gap measure, this means that the company will spend a lot of time and resources to provide the public cannot provide any valuable information.


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