US pay ratio disclosure 'not useful'

A business academic has said it is "difficult to see" how the controversial new rules for chief executive pay disclosure in the US will benefit shareholders.

Writing in the Financial Times, professor of accounting at the Wharton School Wayne Guay questioned the wisdom of the Dodd-Frank proposal, which requires firms to publish the ratio between their chief executive's pay and that of an average employee.

He said that because disclosure measures for chief executives' remuneration already exist, the new provision will simply lead to "coarse disclosure of wage levels for non-chief executive employees".

Professor Guay suggested the requirement is unnecessary because it is generally agreed that some jobs should offer higher salaries than others, just as some of the raw materials used by businesses are more expensive than others.

"It is difficult to see how scaling one wage by another, or one inventory cost by another, provides a helpful benchmark for whether wages or inventory are overpriced," he commented.

The pay ratio proposal has been criticised by US corporate governance experts and business groups, with some firms claiming it will create an unmanageable administrative burden.