Executive Compensation and Ratio Disclosure (Part 6)

That is not to say that there will not be issues that arise in connection with the implementation of the ratio, many of which have been discussed in the comment letters. 

But the most significant will be efforts by some companies to game the ratio in order to make the CEO's compensation look reasonable.  Part of the reason the SEC had to put in place even more extensive compensation disclosure requirements in 2006 was because some companies exploited gaps in the disclosure regime to understate total income.  This was particularly true with respect to perqs. 

Gaming is more likely to the extent that categories of employees are actually excluded from the ratio.  In those circumstances, companies can improve their ratio by moving workers into those categories.  All of this suggests that when the SEC puts pen to paper and writes the requirements, it should work hard to make sure that the rules are clear and that companies compute the ratio in the same manner so that investors can make fair comparisons, both among companies and with respect to the same company.