SEC Pay Ratio Rule
Floating Share Widget
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission developed regulations requiring public companies to report the ratio of CEO pay to median employee pay. The regulations were adopted in 2015, and most companies will be required to report their pay ratio for the first time beginning in the spring of 2018.
While the SEC pay ratio rule was meant to expose excessive executive compensation and give shareholders a way to assess pay disparities, it is a flawed measure that unfairly singles out industries like retail that have high percentages of part-time, seasonal and entry-level employees.
Why it matters to retailers
NRF believes the retail industry’s high reliance on part-time and seasonal workers will distort retailers’ pay ratios.
The SEC’s guidelines require that pay be computed and reported for all employees on an annualized basis rather than for the hourly rate they are paid, even when employees work on a part-time basis. For retail, the median wage will appear artificially low because the industry employs nearly twice as many short-term, seasonal, part-time and young workers as other industries. Retail’s high percentage of entry level workers will also skew the numbers. These factors will contribute to making the CEO-to-worker pay ratios appear artificially high.
NRF advocates for a fair pay ratio rule
NRF conducted research that shows the SEC methodology is seriously flawed. Failing to adjust for the large number of part-time and seasonal workers inflates retail’s ratios by an estimated 31 percent over typical employers. NRF bases this figure on calculations across the industry comparing median earnings of all retail employees with a more realistic comparison that factors out part-time workers.
The SEC rule distorts the true picture of retail jobs and retail pay and reveals significant flaws and gaps in government data on the industry.
- Part-time workers are critical to the retail business model. Consumer demand shifts daily, weekly and seasonally, which makes it almost impossible for retailers to serve their customers with a workforce made up of full-time associates.
- Overall, about 30 percent of retail workers are classified as part-time. Retail employs 18 percent of all part-time workers in the United States and 23 percent of working teenagers — the most common type of part-time worker.
- Part-time employment offers a flexible choice to millions of Americans across the country and the opportunity to make money and build skills. Most part-time employees (75 percent) are part-time by choice; they may be in school, have another full-time job or be a primary caregiver.
- Part-time wages are also not equivalent to full-time wages due to differences in experience and skill.
NRF believes the CEO pay ratio as calculated under the SEC rule fails to achieve its intended goal. Rather than identifying companies with high disparities between CEO and worker pay, the rule will merely highlight companies with higher proportions of part-time and temporary workers.
While the SEC pay ratio rule is likely to create a false impression of low pay and unhappy workers in the retail industry, research shows that is not the case. Retail offers good jobs, dynamic careers and competitive pay.
- Retail employees like their jobs: 78 percent of retail store employees say they are satisfied with their current job, and 79 percent say they are “happy working in retail.”
- Most employees see professional success: 60 percent of current retail store employees have been promoted, and 85 percent have earned a raise.
- Retail is an industry that supports career growth: 62 percent of retail store managers say they reached their current position by “moving up the ranks” in the industry, for example starting as a store associate or server.
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