New CEO pay ratio regulation is a witch hunt: Roth
October has a lot of associations, one of my favorite being the month of Halloween. But as much as I like goblins and witches, I don't like witch hunts under the guise of consumer protection regulation, which is out front and center this October.
The behemoth and cumbersome set of regulations that comprise the Dodd–Frank Wall Street Reform and Consumer Protection Act have mandated that the Securities and Exchange Commission change reporting rules to require disclosure of some very odd information.
This disclosure includes requiring companies to report: (i) the median pay for all employees absent the CEO: (ii) the CEO's pay (which is already a required disclosure); and (ii) a meaningless comparison—the ratio between the two (CEO pay to median employee pay). This is a stupid and dangerous piece of overregulation that I encourage everyone to oppose.
There are certainly many CEOs that, in my judgment, are overpaid based on their services. But in essence, unless I am a shareholder, who am I to judge? And if I am a shareholder, I already know this because investors already have access to CEO compensation.
The SEC's mandate is to regulate companies with publicly tradeable securities and require disclosure to help investors determine the investment profile, risks and rewards associated with a given company. While companies already must disclose pay of top executives, I don't know how median pay of employees is relevant, let alone analyzable.
The most confounding aspect of this new requirement is the ratio. The CEO to median employee ratio is about as helpful as analyzing the ratio of the amount of jellybeans consumed to mobile devices used by each employee. It creates an apples and oranges piece of data that the uninformed can point to and say, "Wow, look how much more that CEO makes than the median employee." But, it's inherently meaningless and can't even be compared accurately between companies.
The calculation doesn't allow for normalizing seasonal or part-time employees, employees working in other locales or where the costs of living vary.
Plus, how do you determine if it's more difficult and valuable to be the CEO of a company with 200 skilled and highly paid employees or the CEO of a major multinational company with 200,000 low-skilled and low-wage employees? What's the appropriate benchmark for any ratio and does it vary by industry or company size? Any answer is inherently arbitrary.
This isn't a relevant piece of investor data, meant to protect the shareholder or give them important information to evaluate their investment. This is a piece of social commentary and a screwed-up one at that.
(Read more: CEO pay: Another statistic coming for investors)
We already have far too many un- and underinformed citizens; now, the SEC and Congress want to give them more data purely as a mechanism to shame CEOs with information that isn't helpful or relevant. It's meant to push an agenda and social commentary around monetary inequality.
This is dangerous, not only in perpetuating the garbage-laden metric, but it also pushes the SEC far beyond its investor protection mandate. Doing this means that the SEC becomes a shill for Congress' agendas—which are really the agendas of special interest groups—regardless of if they fit the SEC's purpose. We can neither allow special interest to continue to infiltrate our political bodies and influence regulation, nor accept more regulation that does not solve a problem or that should not be regulated to begin with.
It's nobody's business—other than the shareholders—what a CEO is compensated. That information is already made available to shareholders so that they can evaluate it. And while I find that many companies compensate or have compensated their highest employees at rates that seem far too high for their value (I am looking at you, J.C. Penney), there are a number of other examples of incredibly high pay that I can point to outside of the C-Suite.
Should Beyonce make $50 million to promote Pepsi? Will Congress also require disclosure before a commercial of the ratio of how much she was compensated versus the average Pepsi drinker or versus the people who worked on the commercials with her? How about in the movie theater pre-roll comparing Robert Downey Jr.'s $50 million haul to that of the median compensation for the staff that worked on the movie?
Both of those compensation packages seem to defy supply and demand to me, but guess what, it's not our business and creating some silly ratio out of it doesn't further enrich our lives. Frankly, these examples are just as absurd as what's being proposed by the SEC and Dodd-Frank in this rule.
What about our own lawmakers and the lobbyists that serve them? Some of the wealthiest "1-percenters" are current and past public servants (just look at Nancy Pelosi and Al Gore) and some of the wealthiest counties in the nation are in the Washington, D.C., area, an area that has thrived financially while the rest of the country has been struggling.
It seems that D.C. is the first place we should be looking at overcompensation because in that case the American citizens are the stakeholders.
(Read more: If US shutdown helps deal with debt—do it)
We also shouldn't forget that our lawmakers, who aren't particularly financially savvy if you haven't noticed despite accumulating great wealth, always forget about unintended consequences. By creating a ratio, even a meaningless ratio, it will ultimately be used as a compensation benchmark. Through being able to point to other companies that have higher compensation ratios, C-level executives will be able to justify asking for higher pay packages.
Sarbanes-Oxley made it more unattractive and burdensome to be a public company in the United States. Shouldn't we be fostering relationships with companies, at home and abroad, that can innovate and create jobs, providing them easier access to the capital that can help them grow, instead of starting a misinformed "I hate business" campaign?
Do some executives get paid more than they are worth? Yes. So do a lot of other workers (including those in our Congress) and it's not the government's job to regulate executive pay. Doing so will be just one more step toward the death of the free market in America.
Make your voice heard that this regulation, and others like it, need to go and ask Washington to instead turn the compensation discussion on themselves. We need to start turning D.C.'s "tricks" into some "treats" for the citizens that they are supposed to represent.
—Carol Roth is a CNBC contributor, the host of WGN Radio's "The Noon Show" and best-selling author of "The Entrepreneur Equation." Follow her on Twitter: @CarolJSRoth.