Stressing over Pay-Ratio Strategies

The Dodd-Frank Act mandated the CEO pay ratio rule — which goes into effect in early 2018 — with the intention of making the public and employees aware of how much a CEO is paid when compared to the median compensation of all employees.

The odd part is employers apparently have little problem coming up with the CEO pay-to-worker data, but the real challenge is figuring out when, how or if they will tell employees about it, according to a recent poll Willis Towers Watson conducted with 360 corporate executives and compensation professionals in September 2017.

No doubt this lack of action is partly because many employers are stressed about how employees will respond to the pay ratio disclosure. WTW believes that’s a mistake, according to Steve Seelig, senior regulatory advisor for Executive Compensation at WTW.

The survey found that roughly half of poll participants report their biggest challenge in complying with the forthcoming pay ratio disclosure rule is forecasting how their employees will react. The poll also revealed that 48 percent of participants haven’t considered how, or even if, they will communicate the pay ratio – even though employees’ reaction to the disclosure is their biggest worry.

“It’s somewhat surprising that so many companies haven’t considered how or if they will communicate the ratio to their employees, given that so many are concerned about how they will react,” said Jim Kohler, director, Communication and Change Management at Willis Towers Watson, in a company news release. Kohler added that employers should view the act as “a golden opportunity” to launch a dialogue with not only employees but also customers, investors and the media about pay positioning and pay transparency.

“In fact, we are working with several companies on developing a communication road map to guide them through the process,” he says.

To help employers out, the Securities and Exchange Commission also issued detailed guidance recently so affected employers can manage their data issues using statistical sampling.

“The clock is ticking for companies to comply,” WTW’s Seelig said.

The good news is of those who have a communications plan in place (a meager 14 percent), 39 percent are prepping  leadership to respond to employee questions. On the downside, just 16 percent of them are prepping managers to have employee discussions. As for a “do nothing” strategy, a similar number as those with detailed plans are not going to say anything at all to employees, according to the poll.

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