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For those who missed the Pay Ratio-related resources in last week's Society Alert, in this new memo: "The CEO Pay Ratio in Context: Framing the Narrative," Pay Governance outlines a suggested corporate communications strategy designed to provide context to the company's pay ratio disclosure to mitigate unwarranted adverse reactions from investors and employees.

After setting the stage by graphically illustrating the complete lack of comparability between the median employee and CEO labor markets (which form the basis for the ratio), and the inherent business and staffing model variations that necessarily yield significantly different, incomparable ratios among companies, the firm identifies sensible objectives - and proposes key elements - for supplemental disclosure to address anticipated employee and investor concerns.

The firm advises that employee-focused disclosure demonstrate objectivity and fairness:  

We would not suggest companies explain in detail how their dispersion of pay occurred or directly address the specific differences in pay among segments or levels of its employees. However, a description of the experience, skill, and tenure of the typical employee would provide perspective for other employees or outside observers. Some brief explanation of the tools and processes used in setting broad-based pay, such as market pay surveys, internal job evaluation tools, or collective bargaining, may also be used to demonstrate fairness and objectivity.

Investor-targeted communications are advised to emphasize the business-specific factors that drive the ratio, and which make comparisons of CEO and median employee pay inappropriate:

For investors, companies may wish to communicate that the drivers of the pay ratio are inherent to the successful business model of the company: 

1) CEO pay is designed to provide a competitive CEO pay package with significant performance-based pay in a highly­‐competitive CEO talent market.

2) Median employee pay represents the company’s compensation payments to employees at various rates based on closely monitored competitive labor markets.

Some companies may wish to address the pay ratio by noting that the company’s strategic and operating decisions consider the interests of shareholders, customers, and employees - including the effects on employment and employee wages.