The Securities and Exchange Commission this week adopted a new rule requiring public companies to disclose how much money CEOs earn in comparison to typical employees.
The Times said the requirement could help shareholders make decisions on company performance based on things like morale and turnover.
But when it comes to Wall Street firms — which the rule was presumably designed for, since Dodd-Frank is a Wall Street reform law — it may not show a great deal.
The pay gap rule has already received criticism for a number of reasons. For example, it requires companies to compare chief executive pay with the median employee compensation, rather than the mean.
Companies will be allowed to choose their own methodology for identifying the median employee, including using samples of the employee population rather than the full body.
The concern, as voiced by Fortune's S. Kumar, is that companies could throw in a few higher-paid employees and exclude some lower-level workers when calculating the median. That would ultimately reduce the wage gap.
But even if the SEC had required companies to take the average pay of all employees, it would still be hard to glean anything from the results — especially for Wall Street firms with sizable investment banking arms.
We calculated the pay gaps for six of the biggest banks, based on average employee pay. To do that, we looked at 2014 CEO compensation data from proxy statements, total employee compensation in 2014 from balance sheets in quarterly and annual reports, and the total number of employees at each bank.
Here's what those pay ratios look like:
Total executive compensation for CEO Lloyd Blankfein: $24 million
Total compensation expenses: $12.69 billion
Total number of employees: 34,000
Average employee pay: $373,235
CEO pay is 64.3 x that of average employee.
Total executive compensation for CEO James Gorman: $22.5 million
Total compensation expenses: $17.8 billion
Total number of employees: 55,802
Average employee pay: $319,415
CEO pay is 70.4 x that of average employee.
Bank of America
Total executive compensation for CEO Brian Moynihan: $15.3 million
Total “personnel” expenses: $33.8 billion
Total number of employees: 233,000
Average employee pay: $145,008
CEO pay is 105.5 x that of average employee.
Total executive compensation for CEO Michael Corbat: $13 million
Total compensation expenses: $24 billion
Total number of employees: 243,000
Average employee pay: $98,596
CEO pay is 131.9 x that of average employee.
Total executive compensation for CEO John Strumpf: $19.3 million
Total compensation expenses: $29.9 billion
Total number of employees: 266,000
Average employee pay: $112,563
CEO makes 171.5 x that of average employee.
Total executive compensation for CEO Jamie Dimon: $27.7 million
Total compensation expenses: $30.16 billion
Total number of employees: 241,359
Average employee pay: $124,959
CEO pay is 221.7 x that of average employee.
Whoa, right? JPMorgan's compensation gap, by these numbers, is three-and-a-half times that of Goldman Sachs.
The thing is that each bank has a different business model. JPMorgan is not just an investment bank. It has a huge retail banking wing — Chase — with staffs of lower-wage employees, from branch managers to tellers.
Banks like Goldman Sachs and Morgan Stanley have far fewer employees than JPMorgan, and none of those employees are tellers. Many of them work in higher-paid positions — for example, in trading, wealth management, or in the investment banking division.
Citigroup has brick-and-mortar retail branches and almost as many employees as JPMorgan, but the wage gap at Citi is smaller.
That's mainly because CEO Michael Corbat's pay package was smaller than those of his Wall Street peers in 2014. His pay was cut about 10% last year, after the bank's profits nearly halved, largely due to legal costs.
So even based on average employee wages, rather than median, we still don't have a very clear picture.
What does it matter?
The real question that arises from the new disclosure rule is: So what?
The whole point of the requirement is to increase transparency at companies and maybe embarrass the bosses.
But on Wall Street everyone already knows what the boss makes. And they have a pretty good idea of your comp package, too — based on whether you're an analyst, an associate, a VP, or an MD.
At investment banks, where everything is a competition and money is the prize, knowing that your boss pulls in more than anyone else on the Street will not weaken employee morale. It's more likely to be a point of pride, or something to aspire to.
Disclosing the gap wouldn't change any of that.
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