Articles published recently in the Washington Post and Wall Street Journal reflect the realization that Congress is unlikely to repeal the pay ratio, and while SEC action to delay the ratio remains a possibility, companies need to prepare to disclose the ratio in 2018. The Post article focuses on the shift toward company implementation from repeal. By contrast, the Wall Street Journal article states that “investors should want [the ratio] to survive, even if it only provides a sliver of insight into the companies they own” and urges them to “use their new analytical tool with caution” if it survives. It is hard to reconcile the article’s support for the pay ratio given that it describes many of the flaws of the pay ratio mandate, including that comparisons between companies, even in the same sector, are likely to be useless given significant differences in business model and geographic scope. In addition, the article criticizes "simplistic" studies showing an association between lower pay and higher shareholder returns, noting that this may have more to do with performance differentials between small and large-cap companies, and it cites a PwC study using realized pay that showed a positive correlation between executive pay and three-year returns for big UK companies.
Given this body of evidence, it is hard to understand what insights the pay ratio disclosure will provide investors that isn’t already provided through existing disclosures. Given that changes in CEO pay will have the most significant impact on the ratio, it is unclear why, in the author’s words, “a widening ratio could be a warning flag that a management team is getting greedy” worthy of the time in preparation and disclosure of the ratio. Likewise, it is hard to understand what additional information the ratio would have provided that would have unveiled so-called “deteriorating pay practices” at large financial institutions preceding the 2008 financial meltdown. The article's final conclusion seems to be that although the pay ratio is unlikely to provide significant benefit to investors, and could in fact be seriously misleading, it is still better to move forward with the mandate in the name of "transparency" rather than focus on other more accurate indicators of company pay and performance alignment.