New Proposal To Curb CEO'S Soaring Salary

P Securities and Exchange Commission has issued a mandatory requirement for US companies to disclose the pay comparison between executives and ordinary employees.

Many large listed companies have lost control of executive pay, the wages of ordinary employees are stagnant, and the board of directors can not effectively link the CEO pay with the company's long-term performance. These are the main reasons for promoting the relevant provisions of the SFC.

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< p > according to the effective mode of capitalism, companies should provide CEO salaries based on multiple factors, including quarterly earnings, long-term performance, stock price appreciation, innovation, capital returns, employee satisfaction and customer retention.

But in fact, CEO's pay is usually based on only a few indicators which can make analysts and investors dizzy in the short term, but in fact, these indicators simply can not reflect the company's fundamental or future performance potential.

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< p > so, for shareholders activist, workers' rights advocates and trade unions, the SFC's measures seem to be good news, but in fact, this does not have much effect on the status quo of the remuneration.

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There are many reasons why < p >.

First of all, large shareholders have already known the compensation information of executives because of their strong position. Therefore, since they have no objection to CEO's remuneration, they can not change their position. As for small shareholders, as long as their stocks can appreciate in the near future, they do not care about executive pay.

In addition, the Dodd Frank Act (Dodd-Frank) has the right to speak in the right to pay, although it has the right of shareholders to oppose excessive remuneration, but it has no binding effect on the board of directors of the company, so it has no effect at all.

In addition, assessing the long-term significance of business decisions and linking them to short-term remuneration of executives is a very complicated process, and the "recovery of interest" is also very difficult to operate.

There is also a very important reason. Many CEO have undue influence on the board of directors and their personal remuneration. Sometimes CEO also serves as chairman of the company's board.

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P recently, the SFC has been actively introducing policies to companies and companies, but the new rules can not solve these challenges, so it is very difficult to produce any impact.

The more effective way is to provide incentives for the company to rationalize CEO salaries, such as tax credits, and to determine the tax credit based on the ratio of CEO to the employees' pay.

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< p > if the company's salary ratio is 25:1, and the company has 300 employees, the company can get a tax credit amount of $1000 (each worker does not adjust the tax credit amount) x1/25 (reverse pay ratio) X300 (employee number) =12000 USD < /p >

< p > in the above example, the lower the pay ratio (or the smaller the salary gap between CEO and ordinary employees), the higher the tax credit, which will encourage companies to be more prudent in developing CEO pay and junior staff salaries.

One side effect of this formula is that companies may also get tax relief through expansion of recruitment, which is exactly what the government needs to achieve in the current period of high unemployment.

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< p > of course, the source of the new tax relief is difficult to guarantee, but the CEO salary shows a feasible solution than itself.

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At present, the loopholes in the US tax system have led many companies to pfer their businesses to overseas tax havens, and to evade taxes that should have been paid to the IRS (IRS), causing the US Treasury to lose $150 billion a year in revenue.

The beneficiaries of these vulnerabilities are large companies with international business and hidden tax policies, and the CEO compensation ratio of these companies is also the highest (354:1).

As long as some of the loopholes can be mended, the US government can easily replace these loopholes by using tax relief based on the CEO pay ratio of 3687 listed companies in the US.

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< p > if tax relief can be used to encourage investment and innovation, why can not it be used to promote more effective corporate governance? < /p >