by Cydney Posner

Even though pay-ratio disclosure will not need to appear in proxy statements before 2018, companies are still starting to fret about how their ratios will compare with their peers and whether an unseemly gap might be detrimental to their reputations and unsettle their work forces.  In this article from the WSJ, the author consults with several “reputation management experts” for their recommendations on how to navigate this minefield.  Some of the more upbeat types advise that companies treat the disclosure mandate as “an opportunity for the company to prove its commitment to transparency, reinforce its reputation and earn additional trust from key stakeholders.”  If they blow it, of course, it could have, well, “the exact opposite effect.”

Collectively, these experts advise companies to:

  • Devise a communications strategy that envisions the toughest questions the company is going to receive from its harshest critics and prepare responses that are transparent, avoid legal-sounding jargon and show sincerity. Communications should target employees, shareholders, customers and other stakeholders.
  • Apprise employees of “what is happening” early, truthfully and clearly, and explain what the company is doing about the issue, including how the company and the employees may benefit.
  • Typically, the CEO’s compensation reflects “company policies, board decisions and the value given to the CEO’s leadership.” Companies should consider “whether these reflect the priorities and values of the organization…..'[I]f not, the reputation risk isn’t simply disclosure.’”
  • Consider “what a successful outcome looks like,” including shaping the narrative around the pay ratio with additional relevant information and adopting an appropriate tone to ensure that the message does not seem combative or defensive.  In addition, companies “must come to grips with the fact that ‘even the best strategy may not lessen the outrage.’”
  • Try to limit the news to a one-day event by releasing all the information at once. How the company responds to negative public reaction to the facts could extend the story too.
  • “’Look for opportunities to be the white hat in the debate.’” For example, companies should consider how to “ensure their business results spread the rewards to all their constituents, including employees….” Some companies that favor an increase in federal minimum wage “are doing their own research to turn some CEOs into ‘poster children in the push for income equality.”’ Companies may also want to put policies in place that position the company “’as a visionary on compensation and benefits issues…..The more you do now the less you have to defend later.’”
  • When determining performance metrics, companies should look beyond the stock price: “’Have executives provided excellent returns on invested capital? Have they strengthened the company’s ability to acquire other companies? Have they created jobs? If so, these achievements paint a broader and more accurate picture’” and may enhance the company’s narrative.

Soapbox:  My two bits — be grateful that the pay-ratio information won’t be required to be disclosed at any point during the 2016 political campaign.

Posted by Cydney Posner