Another Example Of Why We're In This Mess

As The Whited Sepulchre has pointed out, the current administration's policy is "Pass it so we can see what's in it, write it so the author can read it, and re-educate the masses so they can appreciate all we're doing for them."

Of course, this leads to all sorts of counterproductive Easter eggs being tucked away in those massive tomes that are today's version of legislation. They manage to raise more questions than they answer, and invoke the law of unintended consequences. Case in point: the so-called Dodd-Frank financial reform act (Geez, even the name of that abomination reeks of irony). From the Financial Times:

A little-noticed provision in the mammoth Dodd-Frank financial reform act will force companies to disclose regularly the ratio of the median annual pay of all their employees to that of their chief executive.

The provision was inserted into the Dodd-Frank bill “at the last minute, with no discussion and not based on any particular problem”, says Charles Elson, a corporate governance professor at the University of Delaware. He categorised the pay ratio as a “thrill disclosure” that would generate headlines without offering meaningful comparisons.

A solution in search of a problem. I'm all in favor of transparency and disclosure, but for publicly held firms their executive compensation, number of employees, and overall salary expense is a matter of public record. What else is needed?   

“This is a political disclosure, as opposed to an economic disclosure, and that’s the problem,” Prof Elson adds.

Oh, that explains it. It's political (insert surprised/shocked expression here).

Lawyers caution that the formula mandated by the act has some seemingly perverse consequences, in terms of factors that will produce a low ratio – an apparent but potentially misleading sign of a company without excessive executive remuneration.

 “It will favour companies that outsource and use independent contractors, and those that use franchised rather than company-owned stores, since these relatively low paid jobs will not count towards the median tally,” says Richard Susko, a partner at law firm Cleary Gottlieb.

Unintended consequences. Just what the economy needs - another driver that encourages firms to shed jobs.

Many of the crucial factors affecting the ratio have been left to the discretion of the Securities and Exchange Commission, which has to draw up the regulations to implement the new rule…

Ah yes. Pass it first, then figure out how to implement it.

But whatever the SEC decides, the regulation is expected to create a potentially significant administrative burden. George Paulin, chairman and chief executive of the pay consultancy Frederick W. Cook & Co, predicts that the “procedure will be so complex that you will have to hire someone whose sole job will be to manage the preparation of the CEO pay ratio”.

Ah ha!!! It's a job creation bill...