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Publicly listed companies will have a few years before they need to report the gap between the pay for their chief executive and that of their median employee, but smart businesses will begin now to craft a strategy to avoid the pitfalls that will come from making this disclosure.
While many companies are fearful of the time and cost of complying with the rule approved this week by the U.S. Securities and Exchange Commission, the bigger risk may come from having to communicate to employees—especially those making below the median employee—about how their pay is calculated and why they get paid what they get for the job they do, said Sharon Podstupka, a Principal at Pearl Meyer & Partners. “We can’t lose sight of the spotlight this rule is going to put on median pay and those who are closer to the median than the CEO’s pay and the attention they will pay to it,” Podstupka said during a webinar on Thursday.
Because companies won’t have to disclose the pay ratio until 2018, Ms. Podstupka said companies need to use the time between now and disclosure to “plot out your internal communications strategy, get people educated about how your company sets pay.” This includes being more transparent about what employees are told about how base salaries are set, how incentive plans and bonus pools are funded and getting human resources and managers well trained “to give the workforce comfort their pay is being set in a fair way. This is the first step and the best offense,” Podstupka added.