By Nir Kaissar / Bloomberg Opinion
U.S. public companies make hundreds of disclosures in their annual reports. Amazingly, how much they pay workers isn’t one of them. That needs to change.
U.S. wages are rising after decades of stagnation. And yet, by all indications, income inequality in the U.S. is the highest ever and growing, and tens of millions of full-time workers still fail to earn a living wage. As numerous economists and observers have warned, widening income disparity and workers’ inability to secure a dignified living threaten the long-term health of the economy, sow political and social discord and raise doubts about the viability of capitalism and democracy.
But there are more questions than answers. Roughly how many workers earn less than a living wage, and how much less? To what extent are inadequate wages contributing to slowing economic growth? And to what extent is corporate America — which collectively employs about half of workers, many of whom receive taxpayer-funded assistance — responsible for stalled wage growth?
Those questions and many others would go a long way to being answered if public companies were required to disclose how much they pay workers. It’s remarkable that it isn’t already required given that workers are vital to every business and that wages are among companies’ biggest expense. If the purpose of financial disclosure is to give investors the information they need to properly assess the health and future of companies, surely how much they pay employees is an important piece of that puzzle.
In fact, compensation data may be more important than ever to investors. The treatment of workers is a key component of the “S” in ESG, a popular investing movement that believes companies’ environmental, social and governance policies impact their bottom lines. And nothing is more fundamental to workers’ well-being than whether they earn a living wage. There’s also a growing number of values-based investors who want to align their money with companies that take care of workers, even if it means lower profits. But neither ESG nor values-driven investors have the information they need to make informed judgments when it comes to workers.
Investors won’t be the only ones who benefit from more disclosure. With corporate wage data, scholars and think tanks will be better able to study the impact of wages on workers and families, the economy, and the political and social environment; journalists will be better able to evaluate companies’ treatment of workers; and lawmakers and regulators will be better able to direct government assistance where it’s needed most. Those insights are urgently needed when the middle class, once the hallmark of a proud market-based U.S. economy, is shrinking, living standards for many Americans are declining, reliance on public assistance is growing, the economy is decelerating and trust in institutions is eroding.
Companies recognize the problem. Three years ago, in a statement signed by more than 180 CEOs of the biggest U.S. companies, the Business Roundtable redefined the purpose of a corporation to include furthering the interests of not just shareholders but all stakeholders, including workers. It wasn’t an act of charity; it was a recognition that businesses cannot thrive if the economic, political and social environment crumbles around them. BlackRock CEO Larry Fink put it this way in his latest annual letter to CEOs: “A company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders.”
An important part of that value lies in how companies treat workers. Some companies have raised wages since the Business Roundtable issued its statement. Many have not. Without disclosure around employee compensation, how much has changed remains a mystery.
The Securities and Exchange Commission, which is the arbiter of what public companies must disclose to investors, already requires companies to report what they pay executives. And for several years it has also required companies to disclose their CEO-to-worker pay ratio, which includes median worker pay. It’s easy for companies to comply because they already track payrolls closely. Requiring them to report how much they pay all employees wouldn’t be any more burdensome.
At a minimum, the SEC should require companies to disclose total employee compensation, and preferably by deciles, which would allow investors and researchers to slice the data in numerous ways, including the level and distribution of wages each year and over time. There will be some differences across companies and industries, but disclosure rules can accommodate those differences, as they already do in many other contexts.
Many companies will resist, fearing a backlash. The data is likely to show that workers are receiving an ever-smaller share of growing corporate profits. That’s true of the broader economy. Since 1979, gross domestic product has grown 2.5 percent a year after inflation, while wages have grown just 0.2 percent a year. The limited wage data that companies already report is not flattering. It confirms that the CEO-to-worker pay ratio has ballooned to more than 300-to-1 from closer to 20-to-1 in the 1960s.
But withholding compensation data from investors in the hope that questions about corporate pay practices go away is the wrong answer. And greater transparency around wages is likely to reveal some companies that share their success with all workers, not just executives. Perhaps the data will show that those companies also deliver the best value for shareholders, as Fink and ESG adherents contend.
Regardless of whether you believe, as I do, that the U.S. has a wage problem or that taking care of workers is good for business, requiring companies to disclose what they pay employees is good for investors and markets; and anyone interested in better understanding the impact of corporate America’s vast footprint.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.