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The long-awaited pay ratio disclosure rule could be an “explosive” issue for employees when they discover how their pay compares with their colleagues’, not just with the CEO, board members were warned by panelists at the 2014 NACD Board Leadership Conference. At issue: while CEO compensation levels are generally well known at public companies, problems may arise when employees start to compare their pay to the median across the company.
Therefore, companies need to be prepared for questions over the pay structure when the pay ratio disclosures are made public, said Sharon Podstupka, vice president at Pearl Meyer & Partners, at the NACD event. Managers might also benefit from training in how to discuss compensation, she said.
“We know that trust is eroding,” said Podstupka. “Fifty percent of the workforce does not believe they are being paid fairly compared to internal peers. That’s a product of not enough transparency about how that works.”
Boards were advised to head off a potential backlash from disgruntled workers by being clear and candid about how companywide compensation fits in with the organization’s overall strategy.