IFA pay row raises issues of disclosure

In her column last Monday, Terry Prone very reasonably asked if the average income of a farmer is €28,000, what is the fair multiplier for the CEO of the Irish Farmers’ Association.

Just like the rest of us, Terry wasn’t able to answer that question.

The article pointed out the merits of the now former CEO in terms of the benefits he is credited for bringing to the IFA, particularly since his appointment as CEO.

Whether the ratio should have been 20 or thereabouts, as it appears to have been, or should have been lower, is another question.

In fact, the pay scale of senior executives has been exercising many a brain over recent years, particularly since the economic collapse in 2008.

In 2008, Wall St investment bankers Lehman Brothers helped bring down the global economy.

It could even be said it was the card at the very bottom of the pyramid that collapsed and brought the whole pyramid down.

The CEO and chairman Dick Fuld had only been in those positions for up to 15 years.

This guy earned in the years between 2000 and 2008 the unholy sum of $484m (€456.7m) in salary, bonuses, and stock options.

Less than a year before the crash, the firm actually awarded almost $700m to 50 of its highest paid employees, each being pledged between $8m to $51m in cash, stock, and other compensation.

In their own eyes and in the eyes of many on Wall St and in investment banking, these guys were the ‘masters of the universe’.

Twelve months later, their world collapsed and it is argued that they brought it all on themselves.

The pity is the rest of us became collateral damage.

We are still collateral damage as the result of the actions of these masters of the universe.

Were they worth what they were paid?

Indeed, are such pay levels ever reasonable, particularly when you consider the dodgy financial products these guys were flogging to the unsuspecting world?

More importantly, the ratio between the pay scales of those at what we will loosely call ‘the top’ and those working in the engine room of the various companies, has been raising a lot of eyebrows.

A scan of the available information throws up information on what researchers can actually access, and the figures for the remuneration packages of those at the top can be notoriously difficult to access.

It also relates to accounts lodged in the US, so it may not be relevant to the local subsidiary.

Under one set of measurements, the median salary of a Microsoft employee in 2014 was $114,500, with the CEO earning a multiple of 11 times this, or $1.26m.

Using the same measurements, the median salary of a Pfizer employee was $93,700, with the CEO earning 60 times this amount.

The Securities and Exchange Commission in the US adopted a final rule last August.

The rule requires a public company to disclose the ratio of the compensation of the CEO to the median compensation of its employees.

Given the vagaries of how such information has been determined, the SEC has also provided the basis on which such ratios are prepared to better compare.

The SEC says the new rule emanates from the Dodd-Frank Wall St Reform and Consumer Protection Act.

The act is designed to provide shareholders with the information they can use to evaluate a CEO’s compensation. It comes into effect from the start of 2017.

To date, the ratio of CEO to the median worker pay averages around 204 times.

But in one case, the ratio is 1,951 times when the SEC format is used. It’s impossible to understand or justify the extent of such pay differentials.

This new rule in the US might not help too much in getting a better balance.

But it does give some transparency. If we are to have any fairness here, we also need transparency.

After all, we pay the bills, and we should know where it is going. The outstanding feature of the IFA pay row was how many people said they were not aware of the scale of the payments.

Once we get transparency, we can then seek accountability.