Public Citizen Protests Variations in Pay Ratios Among "Very Similar" Companies

April 06, 2018

In a letter to the SEC staff this week, advocacy group Public Citizen complained about the "dramatically different" pay ratios of "similar companies in the same industries" and requested an official SEC inquiry into the disclosed CEO and median employee pay levels of companies with "nearly identical business models, numbers of employees and compensation structures."  Public Citizen's letter details several perceived "irregularities and inconsistencies in the reported data," and its press release states that "it's possible that there are reasonable explanations for the discrepancies we found, but it's also possible that some of the companies fudged their numbers or reported bogus data to mislead the public."  Additionally, Public Citizen cries foul over the differing median pay levels of two sets of companies – one set in the financial services industry and the other in the telecommunications industry.  The claims only lend credence to what the Association's Center On Executive Compensation has been saying for years about the pay ratio – different companies will generate pay ratios that are not comparable due to the unique characteristics of their businesses– and therefore any comparison of the data will be misleading.  For example, Public Citizen's surface-level conclusion that their illustrative companies have "nearly identical business models, number of employees, and compensation structures" is not accurate.  The Wall Street Journal explained several of the key factual differences between two of the companies last week in an article highlighted by the Center.  Public Citizen's letter also appears to criticize the flexibility provided by SEC to companies in complying with the pay ratio.  When the pay ratio was proposed and finalized – under the leadership of a Democratic-controlled SEC – the Commission recognized that such flexibility was necessary in light of the questionable utility of the information and there was virtually no opposition by proponents of the pay ratio, including Public Citizen.