The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Fri, 24 Apr 2026 11:32:37 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Why CEO-to-Worker Pay Ratios Matter to Investors – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Why CEO-to-Worker Pay Ratios Matter to Investors https://corpgov.law.harvard.edu/2011/08/11/why-ceo-to-worker-pay-ratios-matter-to-investors/?utm_source=rss&utm_medium=rss&utm_campaign=why-ceo-to-worker-pay-ratios-matter-to-investors https://corpgov.law.harvard.edu/2011/08/11/why-ceo-to-worker-pay-ratios-matter-to-investors/#comments Thu, 11 Aug 2011 13:24:21 +0000 http://blogs.law.harvard.edu/corpgov/?p=19948?d=20150113161141EST Posted by Daniel F. Pedrotty, AFL-CIO, on Thursday, August 11, 2011
Editor's Note:

Daniel Pedrotty is the Director of the AFL-CIO Office of Investment. This post is based on an AFL-CIO briefing paper available here.

Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires public companies to disclose the ratio of compensation between their CEO and their median employee. The Securities and Exchange Commission will propose regulations to implement this requirement later this year. In this briefing paper, the AFL-CIO Office of Investment argues why CEO-to-worker pay ratios matter to investors.

First of all, changes in CEO-to-worker pay ratios are a useful measure of growing CEO pay levels. In 1980, BusinessWeek magazine estimated that the top executives of the largest U.S. companies made 42 times the pay of factory workers. In 2010, the gap between CEO pay at S&P 500 companies and the median U.S. worker had soared to 343 times, according to the AFL-CIO’s Executive PayWatch website.

Secondly, CEO-to-worker pay ratio disclosure will help reduce CEO pay levels. Existing disclosure rules encourage setting CEO pay levels based on “peer group analysis” that has contributed to CEO pay inflation. Pay ratio disclosure will encourage Boards to also consider the relationship of CEO pay to other company employees. Companies with high pay ratios will have to explain and justify their ratio to their shareholders.

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