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SEC votes to require published CEO pay-ratio info

Los Angeles Times

The Securities and Exchange Commission voted Wednesday to require public companies to publish the gap between the pay of the chief executive and the average worker – a controversial measure that is sure to stoke the heated debate about income inequality in the United States.

The commission voted 3-2 along partisan lines, with Democratic appointees arguing the measure will help shareholders hold corporate boards accountable in setting executive pay and Republicans saying the proposal is burdensome, an exercise in showmanship and a misuse of securities laws.

“The ratio will provide valuable information to investors about how a company uses human capital,” said Kara Stein, a Democratic appointee.

The new rule, required under the 2010 Dodd-Frank financial reform law, would require the nation’s 4,000 publicly traded companies to disclose the ratio of the annual total compensation of the CEO to the median of the annual total compensation of the company’s employees.

Under the rule, public companies would disclose median worker pay and its relationship to CEO pay for the first time, alongside the actual pay of the CEO and four other top positions, which have long been disclosed. The rule applies to reporting for financial statements for 2017 and beyond, meaning the first disclosures will appear in spring 2018.

The rule is part of a series of SEC rules to expand executive compensation disclosure and shareholder rights under Dodd-Frank, including a 2011 rule that requires corporations to give shareholders a right to approve executive compensation packages, the so-called “Say on Pay” measure.

Republican Michael Piwowar said the measure was a thinly veiled attempt to cut CEO pay and advance other objectives backed by organized labor and its ideological allies that are outside the agency’s mandate.

The proposal has triggered a highly charged debate among business and public interest groups and others that inundated the SEC with more than 280,000 comments and 1,500 unique letters, SEC Chair Mary Jo White said.