The Securities and Exchange Commission is expected to approve a slimmed-down version of a rule that would require companies to disclose the pay gap between company chief executives and employees.
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The ruling by the Securities and Exchange Commission concludes two years of fierce debate over one of the most controversial proposals the agency has ever put forward.
“We will continue to review the rule and explore our options for how best to clean up the mess it has created”, the chamber’s David Hirschmann said in a statement Wednesday. Commissioner Michael Piwowar called it “a page out of the playbook of Big Labor”.
The rule will come into force in 2017. The business community is claiming it would cost more than $185,000 and nearly 1,000 hours of staff time per company to calculate the CEO-to-worker pay figure. “This is an important advance, which will be useful to investors, workers and policymakers”, Lawrence Mishel, president of the Economic Policy Institute, said in a statement Wednesday.
It’s worth noting that the requirement for gathering and reporting median employee earnings, likely to impact HR departments, also applies to foreign companies that are listed on the US stock markets.
In its final rule, the SEC offered some flexibility to companies, but not almost as much as requested.
The idea of the disclosure, according to a New York Times article, is to allow shareholders to assess the comparable pay of their executives so they can determine whether such pay is comparable to what other companies in their industry are paying.
“The Commission has received more than 287,400 comment letters, including over 1,500 unique letters, with some asserting the importance of the rule to shareholders as they consider the issue of appropriate CEO compensation and investment decisions, and others asserting that the rule has no benefits and will needlessly cause issuers to incur significant costs”.
Prior disclosure rules had sought to set these kinds of incentives and conditions. He also expressed concern that the ratio could be the foundation of even more onerous business requirements, such as a CEO tax in the amount that annual wages could have been increased if the CEO’s pay had been instead divided up equally among the companies’ workers.
Prior to that, the SEC is expecting a pushback from the companies and associations representing their interests. He said similar “name and shame” legislation had run afoul of the first amendment and that the rule may be unconstitutional. Previously, the chamber argued that the rule will be too expensive and could mislead investors. “The record suggests that unfortunately, the public campaign keeping up the pressure and demanding that the rule be finalized does seem to have been necessary”. Further, he said, the rule’s influence should impact the wider economy by forcing pay levels down. “This is pure applesauce”, he said. The SEC was told to write a rule, and now it has written a rule.
Could that be why, in five years, the SEC has still not yet issued a final rule on CEO-to-worker pay?
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So, more transparency may prompt corporate America to keep under control executive pay because investors could have a clear view on how costly top positions in the firm they had invested in were, while customers may boycott some companies by choosing to buy products and services from their competition.
