It was five years in the making, but the Securities and Exchange Commission finally approved a new rule requiring public companies to calculate and disclose their chief executives’ compensation as compared to their workers’ median pay.
The pay-ratio rule – part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act – was approved by the commission on a 3-2 vote, with the two Republican commissioners voting no, The Washington Post reported. The article said:
Calling it ‘one of the most controversial rules’ to arise out of the sweeping Dodd-Frank reform following the financial crisis, the rule’s approving members, including SEC chair Mary Jo White, called it a thoughtful and reasonable measure that would help investors and workers better understand how companies reward both sides of their workforce.
More than 280,000 public comments supporting the CEO-to-worker pay-ratio rule were submitted to the SEC, NPR reports.
Forcing companies to disclose the pay gap between their chief executives and their typical workers is being hailed as a win for consumers and supporters of wage equality.
Considering that the top dog at some of America’s biggest companies earns more than $300 for every $1 its typical employee is paid, the new pay disclosure rule will likely be an eye-opener for consumers and a potential embarrassment for companies and their chief executives, the Post said.
The pay-ratio rule is opposed by many U.S. companies, as well as Republican lawmakers. A statement released by the Center on Executive Compensation said implementing the rule will be costly and burdensome for companies, while providing little meaningful data. Center president Timothy Bartl said:
… It is no secret that CEOs are paid significantly more than the average worker. … The pay-ratio requirement is one of several overly burdensome and impractical provisions of the Dodd Frank Act [that] seek to utilize the federal securities laws to pursue social objectives. The Center will continue to advocate approaches to minimize the negative consequences of this requirement and advocate for more practical and meaningful uses of the SEC’s resources.
The rule doesn’t apply to small companies or emerging growth companies that have less than $1 billion in annual gross revenue, NPR reports. It will take effect in 2017, so companies’ pay ratios will likely start being included in public financial statements in 2018.
A recent study found that many U.S. consumers are swayed to patronize retailers that have lower CEO-to-worker pay ratios. Check out “Heads Up, Retailers: Consumers Care About Fair Pay.”
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