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CEO-to-worker pay ratio disclosure proposal to be issued by SEC

  • Article by: Dina ElBoghdady
  • Washington Post
  • September 17, 2013 - 8:13 PM

 

– After busting several self-imposed deadlines, the Securities and Exchange Commission plans to roll out a plan Wednesday that would require companies to disclose how much more their chief executives are paid than their other employees.

The SEC has been struggling with the initiative since 2010, when it was tucked into a massive financial overhaul law in response to public outrage about excessive executive pay. Earlier attempts to get the plan off the ground faltered after fierce opposition from corporate lobbyists, who cast the mandate as overly burdensome.

On Wednesday, the SEC is scheduled to unveil how it plans to carry out the law. The proposal will be one of three high-profile initiatives that had stalled at the agency before Mary Jo White came on board as chairman in April, promising to finish in as “timely and smart a way as possible” the regulations mandated by Congress in the wake of the financial crisis.

In June, the agency unveiled a long-awaited proposal to revamp the nearly $3 trillion money-market fund industry. Soon after, the commissioners approved a plan that will allow hedge funds and other private firms to raise money by advertising to the public for the first time in decades. And now, the “pay ratio” rule is gaining traction.

The rule will require all public companies to disclose their chief executives’ total compensation, the median compensation of all other employees, and the ratio between the two. Congress inserted the 18-line mandate into the 2,300-page law, known as the Dodd-Frank Act. But the law left it up to the SEC to decide on the logistics.

Within six months of Dodd-Frank’s passage, the SEC circulated a plan internally outlining how it would tackle the mandate. But scores of companies urged the agency to slow down.

Companies already reveal the pay and benefits of their top five executives. The corporate community said that doing the same for the rest of its employees would prove difficult and costly without yielding much benefit to the investing public.

Multinational corporations argued that it would be tough to gather pay data for employees spread across several countries. Smaller firms said high staff turnover posed complications and that the number crunching would drain their limited resources.

Proponents of the pay ratio say those arguments are no more than a ruse. But to address the issues, the AFL-CIO asked the SEC to consider calculating the ratio using statistical sampling, a method that would require firms to gather the information for only a fraction of their employees.

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