“Excessive inequality is corrosive to growth; it is corrosive to society…We can already see too many signs of waning commitment – dilution of reforms, delays in implementation, inconsistency of approaches.”

In the aftermath of the 2008-2009 financial crisis, much of the legislative push to reel in executive pay in the United States became part of a huge bill known as the Dodd-Frank Act, which is aimed at strengthening oversight of the financial services industry and broader corporate culture.

While that bill, signed into law in 2010, mandated federal regulators to take multiple steps to address the issue of excessive executive compensation, today relatively few of these rules have been finalised.

Some of those that have – including allowing shareholders to vote regularly on executive salaries – are less effectual than was anticipated. In fact, the new report includes a detailed “scorecard” of the efficacy of these reforms, both proposed and potential, that affect executive compensation in the United States and Europe.

Recent polling suggests that support among the U.S. public for strengthened regulation is growing. In July, pollsters found that 83 percent of likely U.S. voters supported tougher regulations for financial companies – up from 73 percent last year (respondents weren’t specifically asked about executive pay).

President Barack Obama has also recently stepped up calls for regulators to move more quickly on Dodd-Frank rules, including on executive pay and equality issues more broadly.

“We’ve got more work to do,” Obama said on Jul. 24. “Nearly all the income gains of the past 10 years have continued to flow to the top one percent.”

“The average CEO has gotten a raise of nearly 40 percent since 2009. The average American earns less than he or she did in 1999.”

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Narrowing pay ratios

Some movement is ongoing to address executive compensation. In early September, the Securities and Exchange Commission (SEC), which regulates all companies listed on U.S. stock exchanges, is slated to finalise a rule that would require corporations to regularly publish the ratio of pay between its workers and executives.

While some business interests have derided such disclosure as unnecessary (and legislation proposed in June would undo it completely), at least one important lobby group, the Business Roundtable, told IPS that it would be withholding judgement until after details of the rule, known as Section 953(b), are published.

And while there is some concern over how the SEC will allow companies to define their employee pool when calculating this ratio, advocates of stricter regulation are saying this would be an important step.

“We do think this is a big deal, in that it legitimises the idea that narrow ratios are a good practice,” the Institute for Policy Studies’ Anderson says.

“Eventually, you could also use those ratios in other ways – considering that ratio when determining government contracts, for instance, or linking the ratio to favourable tax policies.”

© 2013 IPS North America

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