Monday, July 8, 2013

More on the Dodd-Frank Pay Ratio

I've written many times on the Dodd-Frank pay ratio rule found in Section 953(b) of that voluminous law. You can read about it here if you haven't before. Recently, and I can't tell from the online version what the date was, the Washington Post wrote on the topic. The 1104 online comments to the Washington Post article tell me that there are certainly a lot of opinions on this.

Interestingly, nobody seems to have consulted an actuary or any type of retirement consultant. Why does this matter? The most variable calculations of the lot that can go into the 953(b) pay ratio calculation are defined benefit. They can be qualified plan or nonqualified in the US and they can be executive or broad-based in other countries. Each will be different and each will use different actuarial assumptions.

Last week, the Economic Policy Institute (EPI) declared that the average chief executive officer last year made 273 times what the average employee made. Is average a mean, a median or something else? Does EPI know how the 273 was calculated? Do the values for the average employee include the same components that the CEO calculations do? I would be willing to wager a lot that the answer to the last question is no. The reason for that is that such calculations do not exist for the average worker. However, most reporters, unless of course they read my blog will never work this out.

I understand what Section 953(b) was supposed to do. Like so many other provisions of ultra-long laws, however, their intent and their drafting are often very different.

Unfortunately, we will probably have guidance soon.

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