New York Times missing the point

Posted by Marc Hodak on September 2, 2010 under Reporting on pay | Be the First to Comment

A NYT editorial today commented on the new disclosure requirement emanating from the Frank-Dodd pile that firms need to calculate and disclose the ratio between the pay of their CEO and that of their average worker.

How does the pay gap between the boss and the workers figure into performance? Are companies efficiently providing goods and services or are they being run for the enrichment of the few? Disclosure of the gap could help provide answers and in the process, help investors, policy makers and the public understand the forces that are shaping business and the economy.

That’s called an assertion without any basis in logic or fact.  As someone who studies all kinds of ratios for all kinds of companies, I can assure you that no single ratio can help a serious analyst deduce a single, meaningful thing about that company’s performance, let alone the forces shaping business and the economy.  What does the fact that WalMart has always had a lower profit margin than K-Mart tell you?  What does it tell you that the best performing railroad in the 1990s had the worst operating ratio (a common measure in that industry)?

In all the discussions about this ratio, not one person has articulated what shareholders would get out of it.  Remember the shareholders–the purported beneficiaries of these disclosures that their companies must bear the cost to prepare?

The big lie in this editorial is not that this disclosure won’t help neither investors, policy makers or the public; it is the gross omission of the real reason for this disclosure:  that it’s intended use, and the sole reason it was inserted into the law, is to give the unions and their media supporters, like the NYT, another crowbar with which to beat management.  Such an omission is a serious lack of disclosure.

Corporate opponents of the law insist that pay-gap disclosures would be misleading. A company that outsources its low-wage work, for example, could have a smaller gap than a company that employs low-wage workers, even though the outsourcer is not necessarily a better-run company. That misses the point. The point is to calculate, disclose and explain the gaps as they exist for the way a company does business.

I always love it when someone who is horribly missing the point says “that misses the point.”