Every four to five years I comment in my Directors & Boards Publisher's Letter on top management pay, which can be mystifying.
My father, Dr. Milton L. Rock, who passed away this winter a month short of his 97th birthday, was instrumental in the professionalization of the field of human resources management in general and executive compensation in particular. When Milt joined Hay Associates in 1949, the personnel department was buried deep within the organizational hierarchy, responsible for tasks such as the company picnic. When he retired in 1985, the department reported directly to the CEO and was accountable for the strategic asset of human resources.
Thirty years after he retired from the chairmanship of the Hay Group, a 2017 article in The Wall Street Journal referred to my father as "the godfather of compensation consulting," and a recent academic study concluded that in terms of compensation bench-marking, "all paths eventually lead back to Milton L. Rock."
These references focused on the ratcheting up of executive pay resulting from compensation surveys that Hay pioneered. However, in determining appropriate pay, the Hay System looks not only at external competiveness but also at internal equity. The latter helps to assure equitable pay levels within an organization.
Concerned about internal equity in general and the widening pay gap between the compensation of the CEO and the median-paid worldwide employee, the SEC in 2013 proposed a new reporting requirement, which went into effect this year. Whereas the pay ratio between the CEO and the factory floor operator has been reported and is orders of magnitude higher in the U.S. than in Europe and Japan, the ratio...