In her principal speech during her recent successful campaign to become the United Kingdom's new Prime Minister, Theresa May said a lot of things that as a corporate governance thinker I have very serious doubts about. In this post, I look at her proposal for greater CEO pay disclosure:
I want to see more transparency, including the full disclosure of bonus targets and the publication of “pay multiple” data: that is, the ratio between the CEO’s pay and the average company worker’s pay.
The US adopted such a requirement in the 2010 Dodd-Frank legislation, of course. It was a dumb idea back then and it's still a dumb idea.
I discussed this Dodd-Frank requirement in my my book Corporate Governance after the Financial Crisis, where I argued that:
The rules are unlikely to provide investors with meaningful information. Instead, they are intended to shame corporations by highlighting the disparity between CEO and shop floor employee pay.
I further explained that:
This requirement is going to be hugely burdensome:
[It] means that for every employee, the company would have to calculate his or her salary, bonus, stock awards, option awards, nonequity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings, and all other compensation (e.g., perquisites). This information would undoubtedly be extremely time-consuming to collect and analyze, making it virtually impossible for a company with thousands of employees to comply with this section of the Act.
In sum, this was another pointless and useless but incredibly costly regulation of the sort that Washington has been loading on business on a bipartisan basis ever since George Bush decided to cave and sign Sarbanes-Oxley into law. Why the UK would want to go down that road is simply beyond me.