Thursday, March 19, 2015

Members of Congress Urge SEC to Adopt Pay Ratio Rule

[This story previously appeared in Securities Regulation Daily.]

By Amanda Maine, J.D.

Fifty-eight members of Congress signed a letter sent to SEC Chair Mary Jo White calling on the Commission to adopt a rule requiring that companies disclose their CEO-to-worker pay ratio. Section 953(b) of the Dodd-Frank Act mandated that the SEC undertake a rulemaking to require publicly traded companies to disclose the ratio of the compensation of their CEOs to the compensation of their median worker. The SEC issued a proposing release in September 2013, but has yet to implement a final rule.

In the letter, the representatives said that adoption of the pay ratio rule is long past due. This information will be useful to boards of directors, investors, and others in assessing and understanding CEO compensation. According to research cited in the letter, the higher the CEO-to-median worker pay ratio, the more likely that CEO is to pursue the kind of risky investment strategies that contributed to the global financial crisis. The letter also cited a Center for Audit quality survey that found that 46 percent of investors consider CEO compensation in their decision making.

Advocacy group Public Citizen issued a press release applauding the representatives’ letter to White. The organization pointed out that more than 100,000 commenters have asked that the SEC finalize the pay ratio rule. According to Public Citizen, of the 400 rules mandated by Dodd-Frank, the pay ratio rule is the simplest. The press release scoffed at claims by major companies that calculating the number would be difficult and costly, describing as “ludicrous” Exxon’s claim that it would cost $100 million to identify its median paid employee.