Ralph Nader and Steven Clifford

Opinion contributors

Corrections & clarification: A prior version of this column misspelled Aptiv.

Beginning this year public companies must compare the pay of their CEO with that of their median employee. Required by Dodd-Frank, disclosure of this CEO pay ratio has produced some jaw-dropping numbers. Aptiv, a maker of auto parts, reported that its CEO made 2,526 time more that its median employee. The CEO pay ratio was 2,483 to 1 at the temp agency ManpowerGroup, 1,804 to 1 at amusement park owner Six Flags, and 1,465 to 1 at Del Monte Produce.

These companies explain that they employ many part time, temporary and seasonal employees, often in low wage countries. What they do not reveal is that the true CEO pay ratio may be more than twice the one they reported.

The reported numbers excludes gains on stock options, often the largest component of CEO compensation. Thanks to an accounting anomaly corporate boards count as compensation only the value of the options at the time they were granted. When the CEO later cashes them in, the board treats CEOs as lucky shareholders who benefited from a higher stock price, even though they paid nothing for them.

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Aptiv reported that CEO Kevin P. Clark’s total compensation was $13,800,347. He also received $17,699,452 from exercising stock option, an amount not included as compensation.

Where did this $17,699,452 come from? According to the company, it came from the tooth fairy. The rest of the shareholders lost money because their shares were diluted when the company printed more shares to give to the CEO. But the company, abetted by the accounting profession, says nothing happened. Add in gains on options and Aptiv’s CEO ratio soars to 5,760 to 1.

Clark is hardly alone. Manpower reported that CEO Jonas Prising was paid $11,987,873. This number excluded $11,292,785 of gains from exercising options and from vesting of restricted stock. With these the CEO pay ratio is 4882 to 1. Performing similar calculations Six Flags’ ratio climbs to 2741 to 1 and Del Monte 2239 to 1.

Outsize CEO pay harms companies. The millions they waste on executive pay is a small fraction of the total cost of the machine. The effects on employee morale are much more costly. When the boss makes 2,000 times what you do, it is difficult to believe that “employees are most important asset.”

More costly is the short-term focus that discourages sound investments. CEOs want a high stock price when cashing options and vested stock. To achieve this they buy back their own stock. From 2005 to 2016,S&P 500 firms paid out $4.2 trillion to its shareholders with repurchases. This equaled over half of their net income and exceeded dividends by 50%. This is $5 trillion that could have created jobs and spurred economic growth if invested in new technology, workforce training, higher pay and lower personnel turnover, product development, and new plant and equipment. Instead, a study showed American corporations cut their R&D publications by 50% between 1980 and 2007.

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How CEOs get paid, or essentially pay themselves, is encouraging America to eat its seed corn.

Disclosure of the CEO pay ratio is a small step towards controlling this problem. It would be much more effective if the SEC and the accounting profession compelled companies to reveal how much the CEO really made by including gains on options and restricted stock.

An excise tax can best restrain outrageous CEO pay. Opening this door, the recent Republican tax bill imposed a 21% excise tax on CEO and other executive pay above $1 million at non-profit organizations. We advocate extending this excise tax to compensation above $1 million for CEOs and other top executives in the for-profit world. Applying this tax to the five highest paid company executives would generate about $1 billion in annual tax revenues.

From 1978 to 2016, inflation-adjusted CEO compensation for S&P 500 CEOs rose 937% while the typical worker’s real wages grew only 11%. Alone, the threat prospect of an excise tax pay might embolden boards to begin to control CEO pay escalation.

Ralph Nader is a consumer advocate. Steven Clifford served as CEO for King Broadcasting Company for five years and National Mobile Television for nine years. He has been a director of thirteen companies and has chaired the compensation committee for both public and private companies.