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This is a demand for disclosure of compensation for employees in every public company. In today's New York Times, Jenny Anderson wrote an article Tying One's Pay to Performance. What a Concept. (NY Times July 15, 2005) This was the usual article complaining about excessive pay, this time about Morgan Stanley's excessive pay practices.  Finally exhausted by the vast number of newspaper articles and academic papers, I thought it is time to take a new approach.  I demand disclosure of all compensation of every employee working for a public corporation.

Currently, public companies are only required to report the top five named and highest paid executive officers. In 1992, the SEC adopted amendments to the executive officer and director compensation disclosure requirements (Reg. Section 229.402, Item 402 of Regulation S-K) applicable to proxy statements, period reports (such as annual reports on Forms 10-K), and registration statements (i.e., Forms S-1 [IPO]). According to the SEC, these amendments were designed to furnish a more understandable presentation of the nature and extent of compensation to executive officers and directors. I like to think this was in reaction to corporate governance activist Nell Minow's (The Corporate Library) objections and demands for disclosure of executive compensation. 

An SEC rule change requiring further comprehensive disclosure is necessary, and would create more transparency in public companies.

Why is there such a reluctance and secrecy about disclosing these deeper levels of compensation information? Is there a fear we would discover more bad and insightful information about compensation practices, which would cause more objective criticism of corporate pay practices. Absolutely. 

Beyond the result of further corporate transparency, further comprehensive compensation disclosures would have an even larger impact. Today, executives or employees on the move or those thinking about it, can certainly locate what the "top five" executives are making. Great, we know what to aspire to. However, good luck locating accurate and company specific compensation information below this executive level.

Disclosure of the entire corporate compensation structure would dramatically alter workplace negotiations regarding pay. Would this result in an ever increasing one-upmanship of lower level compensation?  Maybe not, that seems to be a feature of the executive boardroom. If the principle behind setting compensation is based on market competitiveness and reward for good performance, disclosure of corporate-wide compensation can only breed further competitiveness and properly allocated pay for performance down the ladder. Some may argue this is already taking place in every negotiation for at-will and contractual employment between corporations and employees. In my opinion, corporations would loath further comprehensive disclosure because it would equalize the level of information between the parties and is too cumbersome for disclosure purposes.

Compensation setting across corporations based on banding or otherwise, is only favorable to the corporation. Yes, they have factored in incentive variables to capture and motivate the best talent, but is the best talent getting the best deal possible, given all available information. No. For those employees who know their own human commodity worth based on instinct or input from a retained recruiter, they may well approach a fair bargained for exchange. I believe this occurrence is relatively rare.

If disclosed, how would the information be used? First, the information reported would not include actual names of employees, just the position title. Second, the information could be aggregated much in the same way it is done for the top five executives. Data could be accessed by industry classification codes, gross revenue, number of employees etc. Once the appropriate target companies in the peer group are located, the user could compare across the groups to locate the competitiveness of the pay package being negotiated. One could even apply statistical analysis and derive the mean and medium numbers. The executive and non-managerial employee could then take the information to the negotiation table/interview and argue the case for compensation using actual company and industry data.

Further disclosure of comprehensive corporate-wide compensation practices will occur; it is just a matter of when.

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Mark P. Carey, Founder & CEO

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