With wages growing at the slowest rate in 33 years, the Securities and Exchange Commission’s recent vote requiring publicly traded companies to report the ratio of chief executives’ earnings to those of average workers should fuel discussion of income inequality and encourage companies to narrow the great divide.
The pay-ratio rule is unfinished business from the 5-year-old Dodd-Frank Wall Street Reform and Consumer Protection Act, and it was mightily contested by business interests. The intense lobbying will ultimately delay its implementation until after the 2016 presidential election.
Business interests argued that the rule would cost money to implement, which it will, and that it would hurt workplace morale, which it should. The information will help average workers understand where their companies’ payroll goes and compare the pay gap across companies and sectors.
More competition among companies on that score will benefit middle- and low-income employees. Competition for reliable workers recently forced the nation’s biggest private employer, Wal-Mart, to raise its minimum hourly wage to $9.
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The pay gap between executives and average employees has been growing at an alarming rate. The Economic Policy Institute found that the top 350 U.S. companies pay their CEOs about 300 times what they pay the typical worker, an extraordinary jump since 1978, when the ratio was 30 to 1. Executive pay grew 997 percent between 1978 and 2014, while average employees’ pay grew only 11 percent.
Public frustration with wage stagnation has risen even in generally conservative states, some of which have voted to increase minimum wages. A recent Harvard Business School study found that consumers are willing to pay more for products sold by companies with lower gaps between top executives and rank-and-file workers.
Despite these positive signs, the prospects for higher wages among rank-and-file workers remain limited. Many midlevel jobs lost in the recession have not come back, and average wages remain stuck as executive pay continues to soar. Last month, the Labor Department reported that the Employment Cost Index, a measure of labor compensation, grew only 0.2 percent in the second quarter, the slowest growth since the index was created in 1982.
Stagnant wages are everyone’s problem because they depress consumer spending and therefore economic activity. If greater disclosure can inform the debate and push average wages higher, the whole country will benefit.