When it comes to executive compensation, there’s plenty of data available to investors. It’s not the most complete data in the world, because the SEC-mandated proxy disclosures pertain to only the top five executive officers of a firm. That might be a significant bit of information if there were say, 25 total employees instead of 25,000. With information for only a handful of executives, however, the proxy almost becomes the compensation disclosure equivalent of a “People” magazine: lots of facts, bordering on the salacious, about a handful of beautiful people. (Well, at least their pay packages are usually beautiful.)
Where the pay disclosures fail investors: while they can learn a lot about the fairness or unfairness of executive pay, they don’t get to “scale” that pay information against the total labor element. Knowing the labor content of a product would help investors greatly in assessing one company against another, and it would provide a more useful contrast to the executive pay figures. Context matters, and there’s not enough context available in the financial statement package. Politically-grounded information like the Dodd-Frank Act’s disclosure requirement of the ratio of the CEO’s pay to the median worker pay won’t give investors what they need.
Within the confines of the information provided to them, however, investors can learn a lot about executive pay – more than just whether it’s gone up or down in the past year or so. It’s possible to assess whether the top executives have earned their keep, in terms of value creation for shareholders, as described in last month’s report. It’s also possible to be shocked and dismayed by the degree to which the pay of just a handful of managers can affect the earnings and other critical investor measures. If investors mined a little more of the data present in the proxy statements, they might vote “nay on pay” much more often than they do presently.