According to Business Insider, Warren Buffett used his third annual Thanksgiving letter to Berkshire Hathaway shareholders to criticize SEC rules requiring public companies to compare CEO compensation to median worker pay. The legendary investor argued these 2008 financial crisis-era regulations completely backfired from their intended purpose of embarrassing CEOs into moderation. Instead, Buffett claims CEOs looked at competitors’ ratios and demanded even higher pay, creating “envy, not moderation.” He noted that corporate filings are now five times longer due to these disclosures, with his own pay ratio at Berkshire Hathaway standing at 4.94:1 given his $100,000 salary plus $305,111 in security expenses compared to the median employee’s $82,106. Other companies like Starbucks showed much wider gaps, with CEO Brian Niccol making 6,666 times the median worker at $97.8 million last year.
The law of unintended consequences
Here’s the thing about trying to shame wealthy executives: it rarely works the way reformers hope. Buffett’s argument makes a lot of sense when you think about how competitive these people are. They’re not looking at their pay ratio thinking “I should take less money.” They’re looking at their competitor’s ratio and thinking “Why is that guy getting more than me?”
What’s fascinating is how companies have responded to these rules. Some, like Costco and Amazon, have found creative ways to present more favorable numbers by calculating supplemental ratios using only US-based, full-time employees. That’s not cheating exactly – it’s using the rules to tell a better story. But it shows how disclosure requirements often lead to gaming the system rather than meaningful change.
The disclosure dilemma
Buffett raises a legitimate point about regulatory paperwork bloat. Corporate filings that are five times longer than they used to be? That’s a real cost for companies and a burden for investors trying to find meaningful information. The question becomes: are we getting valuable transparency or just creating busywork?
Look, I’m not defending outrageous CEO pay packages. But Buffett’s perspective is worth considering because he’s one of the few executives who actually walks the talk. The man has been taking the same $100,000 salary for over 40 years while building one of the world’s most successful companies. When he says these rules backfired, he’s speaking from a position where he doesn’t personally benefit from the status quo.
The comparison problem
Starbucks nailed it in their filing when they pointed out that pay ratios aren’t really comparable across companies. Different industries, different geographic footprints, different business models – they all create apples-to-oranges comparisons. A tech company with mostly engineers will have a very different ratio than a retailer with thousands of low-wage workers.
So what’s the solution? Buffett’s rhetorical question says it all: “What consultant ever recommended a serious cut in CEO compensation?” Basically, the entire system is geared toward justifying higher pay, not questioning whether it’s appropriate. Until that changes, disclosure rules might just be rearranging deck chairs on the Titanic.
