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SEC Thinks Arithmetic is Hard

Form W-2. See how easy it is?

In an article on the staggering compensation of CEOs of giant US companies, the New York Times adds arithmetic to the things that are too hard for the SEC, along with other hard things like investigating securities fraud on Wall Street. The Dodd-Frank bill requires corporations to state the ratio of CEO pay to the median income of employees of the company. But:

The requirement isn’t likely to come into effect any time soon, because many companies have complained to the S.E.C. that it would be a burden to comply with it, said Ms. Bowie of [Institutional Shareholder Services].

“There’s been a lot of pushback from companies on that,” she said.

Mary L. Schapiro, the chairwoman of the S.E.C., said at a Congressional hearing last month that the commission was trying to work through “a lot of technical issues” on how companies might calculate this.

Let me help.

Step 1. Make a list of your company’s subsidiaries and controlled entities and the company itself. HInt: see Exhibit 21 to your Annual Report on Form 10-K.

Step 2. Tell the accounting persons for each subsidiary on the list to prepare a list of each employee, and the sum of the amounts shown in Boxes 1, 10, 11,and 12, plus any contributions to a defined benefit plan for that employee which were not recorded in any of the boxes.

Step 3. Add all the lists to a database. Sort by the number next to the name.

Step 4. Count the names. Divide by 2. Count down that many names. Record the number. That is the median payment to employees. Call that X.

Step 5. Find the total amount paid to the CEO. Hint: see your Proxy Statement. Call that Y

Step 6. Divide Y by X.

Tell us the answer in boldface print at least as large as the font you use for the main document. I’m sure that isn’t perfect, but it’s close enough for government work, and see how easy it was?

Then add any explanation you like, using either Comic Sans or Symbol as you see fit. You will want to put in those technical details that might make it look less abusive. Show us your number, explaining how it is different from my number. Explain how awful the government is for making you do all this work. Tell us how many people you had to fire to pay for the intellectual effort of doing these calculations and making up your explanations about why that fabulous paycheck should go to the CEO instead of workers or shareholders. Explain the workings of the market in CEOs compared to the market in accounting and bookkeeping people, salespeople, the people who wrote the code that you sell and the people who actually put the steam turbines together. I love a good work of fiction.

Technical issues my foot. Try Captured Agency.

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