There's been a lot of recent press coverage of the proposed SEC rule requiring companies to disclose the median salaries of employees, along with the ratio of that median to the compensation of the CEO.
A CEO of our acquaintance observes that the coverage has missed a key point: coupled with "say on pay," the proposed rule creates a disincentive for CEO's to hire unskilled workers. For example, a publicly traded manufacturing company that refuses to outsource factory jobs overseas is going to have a skewed median because factories, by their nature, will employ far more floor workers that higher salaried engineers and other employees. As a result, the ratio between the CEO's salary and the median will look outsized even if the CEO's actual salary is appropriate. On the other hand, by outsourcing the factory jobs, the ratio will look much better. We claim to want to encourage manufacturing jobs, but in the end, rules like this favor banks and tech companies, the bulk of whose employees have at least a college degree. It's a funny thing to punish companies for hiring lots of people who lack the same degree of formal education.
Some might scoff at this, claiming CEO's will not outsource for this reason, but it can and will tip the scales in some cases due to the link to "say on pay." Indeed, rule proponents acknowledge the intent of the proposed rule is to pressure public company boards to conform to some socially or politically acceptable ratio.
It's a great example of at least two rules about regulation. The first is unintended consequences. In this case a rule that was intended to help low-skilled American workers by raising their pay will wind up hurting them by sending their jobs overseas. The second is that the regulated entity responds dynamically to the static regulation. The people writing the regulation seem to think the response is going to be raising employee pay or lowering CEO pay. But the response of outsourcing jobs is unanticipated by the regulation.
