Executive Pay Scrutiny Coming in 2018

Executive Pay Scrutiny Coming in 2018

Equifax executives may not be too eager to talk about compensation this holiday season. After the massive data breach that rocked the credit reporting agency in 2017, interim CEO Paulino do Rego announced in November that top execs won’t be receiving annual bonuses this year. But delivering lumps of coal throughout the executive suite is unlikely to quiet the conversation around the hot topic of executive compensation, which is ripe to return to the forefront soon. In fact, the spotlight on executive comp will likely be brighter than ever in the 2018 proxy season.

A few factors are likely to drive this attention, starting with Equifax itself.  Yes, the company took action to mitigate the outrage being directed at it: in addition to eliminating bonuses, it accepted the retirement of former CEO Richard F. Smith and reportedly will not be delivering him any severance pay, which could have been as much as $5 million. While those steps help the optics for Equifax on executive compensation, they may be overshadowed by the fact that Smith will still receive some $18.3 million in pension benefits. Fortune reported that all told, Smith will retire with a pay day worth as much as $90 million over the next few years. Meanwhile, Toys R Us just won approval to pay a group of top executives year-end bonuses of up to $21 million despite the fact that the company is in the midst of a bankruptcy.

Beyond these eyebrow-raising examples, regulatory changes should also sharpen the focus on executive comp in the 2018 proxy season. As we’ve noted before, the pay ratio rule, a mandate within the Dodd Frank Act, will require pay ratio disclosures to begin in early 2018. Under the rule, public companies must disclose the median of the annual total compensation of all employees (other than the CEO), the CEO’s annual total compensation, and the ratio between the two. In light of this, it is worth referencing again the results of a new survey from Pearl Meyer, which found about four in 10 companies expect to report a pay ratio of between $100 and $250 for every dollar earned by their median worker, with another two in 10 bracing for the revelation of an even higher ratio.

Those findings would seem to foretell multiple news cycles about C-suite salaries in the coming year. And yet, most companies (76%) have not discussed how to communicate about the pay ratio both externally and internally. That’s an alarming statistic—because ready or not, in 2018 they’ll be forced to reveal CEO compensation relative to the average wage of their workforce.

It’s a pretty sure bet that around water coolers everywhere, those figures will be the talk of the proxy season.

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